BONDS: EGBs-GILTS CASH CLOSE: Bunds Underperform Gilts, UK Short End Gains

Bunds underperformed Gilts Wednesday, with periphery EGB spreads tightening.

• Core EGBs traded with little clear direction in the morning session. Gilts and Bunds jumped alongside Treasuries in the early European afternoon on a slightly softer-than-expected US CPI report.
• But that would mark the high point of the day, with European yields rising again as the US dollar gained ground on speculation president-elect Trump would install a more pro-tariff Treasury Secretary than had previously been anticipated. Bund and Gilt futures hit session lows after the cash close.
• The UK short-end was a notable outperformer across the curves, with about 1-2bp of BOE cuts added to the path over the next year, despite BoE hawk Mann earlier stressing that inflation has not been vanquished.
• ECB speakers Nagel and Villeroy noted the negative impact US tariffs would have on Eurozone growth.
• The German curve leaned bear flatter, with underperformance in the belly; the UK curve twist steepened. Periphery EGB spreads tightened led by BTPs, as equities regained ground late in the session.
• Thursday's calendar includes the second reading of Eurozone Q3 GDP (including productivity data), with appearances by BoE's Bailey and Mann, and ECB's Guindos and Schnabel, along with the accounts of the ECB's October meeting.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany