Bank Equity Pullback Driving Bull Steepening

Yields have headed sharply lower in early European trade after a fairly quiet overnight session despite stronger-than-expected composite flash PMIs.

• Markets are in decidedly risk-off mode, focusing on large drops in key European bank stocks such as UBS and Deutsche Bank ahead of the weekend.
• Data's largely being brushed aside in importance (if anything, taking a more dovish tilt from the weak Eurozone manufacturing vs services PMIs; UK retail sales were strong but PMIs disappointed).
• The German and UK curves are leading the bull steepening, with the US following suit. The German 2Y yield is down 22bp, UK's 18bp, US's 16bp.
• Periphery EGB spreads are widening in early trade as risk assets are under pressure. In addition to the drop in financial stocks, equity losses look recession-led (energy and materials also underperforming).
• Durable Goods and PMI are the US data highlights going into the weekend.

Latest levels:

• Jun 10-Yr futures (TY) up 23.5/32 at 116-23 (L: 115-21.5 / H: 116-24.5)
• Jun Bund futures (RX) up 169 ticks at 138.73 (L: 137.35 / H: 138.74)
• Jun Gilt futures (G) up 142 ticks at 106.39 (L: 105.46 / H: 106.4)
• Italy / German 10-Yr spread 4.7bps wider at 191.8bps