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BONDS: EGBs-GILTS CASH CLOSE: Early Losses Reverse, Curves Steepen Again

BONDS

Core EGBs and Gilts rebounded from early losses to close Friday flat, with periphery spreads coming off early wides.

  • Bond futures ticked higher overnight, but the move faded over the course of the European morning.
  • UK economic activity came in close to expectations and had little impact. Heavy Italian supply (3/7/15/24-year BTP auctions) helped weigh on the space in the morning.
  • The main macro event of the day, US PPI, brought an initially dovish reaction on a soft headline reading but the details were more mixed, and the uptick faded with a move back to the lows.
  • But the rest of the session saw an almost uninterrupted rally, with no clear catalyst, mainly tracking Treasuries higher. Curves steepened on the day: the UK's in a bullish fashion, with Germany's bear steepening modestly.
  • Overnight reaction to France's fiscal and issuance plans for 2025 released late Wednesday was limited, with OAT/Bund closing Friday unchanged. BTPs underperformed on the periphery, with 10Y spreads to Bunds coming off early wides (4bp) to close about 2bp wider.
  • Fitch's review of France features after hours. Next week brings a busier European schedule, with the ECB decision Thursday (our preview will be out early next week), and UK CPI and labour market data.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 0.2bps at 2.235%, 5-Yr is up 0.7bps at 2.119%, 10-Yr is up 0.9bps at 2.265%, and 30-Yr is up 1.1bps at 2.559%.
  • UK: The 2-Yr yield is down 1.6bps at 4.171%, 5-Yr is down 0.9bps at 4.072%, 10-Yr is down 0.3bps at 4.207%, and 30-Yr is down 0.2bps at 4.749%.
  • Italian BTP spread up 1.8bps at 129.5bps /Spanish up 1.3bps at 74.9bps 
     
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