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BONDS: EGBs-GILTS CASH CLOSE: German Curve Twist Steepens On US Election Impact

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Bunds outperformed Gilts Wednesday in the wake of the US election, with periphery EGB spreads widening sharply.

  • With the election delivering an apparent "Republican Sweep" of the presidency and US Congress, EGBs began pricing in the negative impact on Eurozone growth from Trump administration policies (including tariffs) and relatively higher economic growth/inflation in the US. This translated into more aggressive ECB cut pricing, leading to a rally at the short end of core EGB curves.
  • ECB's de Guindos said the bank would need time to incorporate the trade policy shifts into its projections. Even so, December cut pricing extended 4bp to ~32bp (28% prob of a 50bp cut) but pared that slightly to 30bp by the close. Still, there has now been 17bp of cuts added to the ECB cut path through Sept 2025 (133bp of cuts now seen vs 116bp at Tuesday's close).
  • Gilts were relatively less affected, with the UK seen as less impacted by US post-election policy than the Eurozone.
  • Stronger-than-expected German factory orders data was shrugged off in comparison to the post-election macro concerns for growth.
  • Both the UK and German curves twist steepened. Despite the move in ECB implied, risk-off sentiment in Europe dominated for periphery EGBs, with BTPs leading spread widening (10Y/Bund +8bp).
  • Thursday's schedule is highlighted by central banks, including the BoE (preview here) and Fed. We would be very surprised by anything other than a 25bp cut from the BoE (and Fed) Thursday, but we will be eying whether the Bank's inflation forecasts come in higher than expected.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

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Bunds outperformed Gilts Wednesday in the wake of the US election, with periphery EGB spreads widening sharply.

  • With the election delivering an apparent "Republican Sweep" of the presidency and US Congress, EGBs began pricing in the negative impact on Eurozone growth from Trump administration policies (including tariffs) and relatively higher economic growth/inflation in the US. This translated into more aggressive ECB cut pricing, leading to a rally at the short end of core EGB curves.
  • ECB's de Guindos said the bank would need time to incorporate the trade policy shifts into its projections. Even so, December cut pricing extended 4bp to ~32bp (28% prob of a 50bp cut) but pared that slightly to 30bp by the close. Still, there has now been 17bp of cuts added to the ECB cut path through Sept 2025 (133bp of cuts now seen vs 116bp at Tuesday's close).
  • Gilts were relatively less affected, with the UK seen as less impacted by US post-election policy than the Eurozone.
  • Stronger-than-expected German factory orders data was shrugged off in comparison to the post-election macro concerns for growth.
  • Both the UK and German curves twist steepened. Despite the move in ECB implied, risk-off sentiment in Europe dominated for periphery EGBs, with BTPs leading spread widening (10Y/Bund +8bp).
  • Thursday's schedule is highlighted by central banks, including the BoE (preview here) and Fed. We would be very surprised by anything other than a 25bp cut from the BoE (and Fed) Thursday, but we will be eying whether the Bank's inflation forecasts come in higher than expected.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

Keep reading...Show less