BONDS: EGBs-GILTS CASH CLOSE: Gilts Modestly Outperform With US CPI Awaited

Gilts gained marginally as Bunds weakened Wednesday.

• After a constructive start, yields rose in afternoon trade, led by a continuation of the post-nonfarm payrolls sell-off in US Treasuries and strengthening equities, rather than any European-centric factors.
• Gilts softened from session highs in morning trade after a tail in the 10Y Gilt auction, but the move faded, and all segments on the UK curve would end up outperforming their German counterparts. Some of the outperformance was seen as reflecting an apparent dilution of some of the UK government's more controversial fiscal proposals.
• ECB's Wunsch and Kazimir unsurprisingly cast a hawkish tone ahead of next week's meeting, but the latter said he could not rule out an October cut and that outcome remains over 90% implied in rate futures.
• In a limited data slate, the German trade surplus rose more than expected, driven by a fall in imports.
• On the day, the UK curve twist steepened, with Germany's bear flattening. Periphery EGB spreads closed mixed, with Spain and Portugal modestly underperforming Italy and Greece; 10Y OAT/Bund was flat.
• Thursday's calendar is highlighted by US inflation data - we also get German retail sales, Italian industrial production, and the accounts of the September ECB meeting.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany