EGB/Gilt: Policy Rate Repricing Underpins Curve Flattening

European government bond curves have flattened this morning on the back of short-end policy rate repricing, while equities are broadly lower.

• Preliminary European PMI data for April show broad expansion across Europe with services performing strongly.
• UK retail sales data missed to the downside for March (ex Auto Fuel -0.6% Y/Y vs 0.8% expected) fueling pressure on the pound which has traded down to 1.2896 against the dollar.
• The gilt curve has twist flattened with the 2s30s spread narrowing 4bp.
• Further adding to the recent slew of hawkish ECB commentary, Robert Holzmann stated that asset purchases should end as soon as possible and that visible rate increases hsould follow.
• The bund curve has sold off sharply at the short end with the 2s30s spread trading down 8bp.
• The OAT curve has twist flattened with the 2s30s spread narrowing 10bp.
• It is a similar story for BTPs where the very long end of the curve has flattened ~12bp.
• Supply this morning came from the UK (UKTBs, GBP3.5bn).