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

BONDS
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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

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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

Keep reading...Show less