BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform Gilts On Easier ECB Outlook

EGB curves bull steepened sharply Wednesday in anticipation of increasingly aggressive ECB easing.

• Pricing for a 50bp ECB cut in December neared 50/50 implied probability (~45%), vs 20% Tuesday morning, though this faded to around 38% at the time of the bond cash close. The profile through March implied 9bp of additional cumulative cuts, to 91bp including 65bp through January.
• The additional pricing-in of cuts came following a Reuters sources story suggesting policymakers have begun to debate if weak economic growth warrants rates being cut below neutral levels.
• Bunds easily outperformed Gilts on the day, with yields higher across the UK curve, focused in the belly.
• EGB periphery spreads tightened on the lower ECB rate outlook, with BTPs outperforming.
• Thursday's European data highlight is the October flash PMI round, after September's soft readings.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 7.4bps at 2.103%, 5-Yr is down 3.1bps at 2.113%, 10-Yr is down 1.4bps at 2.304%, and 30-Yr is down 0.3bps at 2.625%.
• UK: The 2-Yr yield is up 2.3bps at 4.094%, 5-Yr is up 4.3bps at 4.039%, 10-Yr is up 3.4bps at 4.2%, and 30-Yr is up 2.3bps at 4.731%.
• Italian BTP spread down 2.8bps at 121.6bps / Spanish down 1.9bps at 69.9bps