BONDS: EGBs-GILTS CASH CLOSE: Geopolitical Risk Premium Reversal

Bunds and Gilts retreated Wednesday, conceding most of Tuesday's late gains.

• Yields rose fairly steadily throughout the session, in an apparent unwinding of Tuesday's Israel-Iran geopolitical risk premium. Solid US private payrolls data weighed on the space in the afternoon, with heightened sensitivity ahead of Friday's US nonfarm payrolls report.
• Data was limited; Eurozone unemployment was in-line with expectations, though Spain saw a smaller-than-expected rise in unemployment.
• Both the UK and German curves bear steepened, with Gilts underperforming - exacerbated by a relatively soft 5Y auction.
• OATs outperformed (10Y/Bund -1.1bp), as more details of French fiscal tightening plans emerged including on sizeable spending cuts added to "temporary" tax raises.
• Periphery EGB spreads were little changed after some widening earlier in the session.
• A speech by ECB's Schnabel will be watched after the cash close for potential signals for an October cut (currently 95% priced - we go through the latest analyst expectations for the ECB rate path in our Eurozone Inflation Insight released today).
• Thursday's calendar is highlighted by the UK DMP data which has become one of the most watched releases for BoE MPC members looking at firms’ expectations for hiring, wage growth and price growth. We also get final September services PMIs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany