BONDS: EGBs-GILTS CASH CLOSE: German Short End Rallies Again On Growth Concerns

German yields continued to retreat Monday, with Bunds outperforming Gilts.

• With no major European releases and US cash bonds closed for holiday, the session saw last week's themes largely continued. Firstly, expectations of weaker Eurozone growth in the Trump era have seen ECB cuts increasingly priced in. OIS now sees 63bp of cuts through the next 2 meetings, 3bp more than seen Friday and 8bp more than pre-US election and helping boost the EGB short end/belly.
• Secondly, and related to broader growth considerations, risks are seen to the implementation of the ruling German government's supplementary Budget - though German Chancellor Scholz ruled out a confidence vote on Wednesday.
• Gilts traded without clear direction. The German curve closed bull steeper, with the UK's leaning bull flatter.
• Periphery EGB spreads tightened in spite of the advance in Bunds. Concerns over Spanish flood aid costs appeared to fail to impact SPGBs, though in fairness they failed to keep pace with periphery peers despite Fitch moving Spain's outlook to positive late on Friday.
• Tuesday brings German ZEW survey data while we also get multiple speakers from the ECB (Holzmann, Rehn, Centeno) and BoE (Pill); the main early focus is the UK labour market report - MNI's preview is here.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany