BONDS: EGBs-GILTS CASH CLOSE: Peripheries Outperform

Cash Gilts and Bunds recovered from an early decline to close slightly weaker Wednesday, as periphery/semi-core spreads tightened.

• Core FI softened early aid stronger equities and oil prices. Italian and Spanish Nov PMIs were slightly on the weak side, while Eurozone PMI was in line.
• A downside miss in the US Services ISM saw a nascent afternoon bounce extend into the cash close, with yields finishing near the lows.
• Yields across both the UK and German curves finished 0.5 to 1.7bps higher, with bellies slightly underperforming overall.
• There were no surprises from ECB President Lagarde in her appearance before the EU Parliament - rate cut pricing receded slightly ahead of next week's decision, with a 25bp reduction still fully priced (50bp implied probability down to 8% from 12% prior). BoE implied traded in a wide range (cumulative cuts through 2025 between 79-88bp).
• Dovish extremes in BoE pricing came after slightly misleading newswire headlines referencing an FT interview with Gov Bailey ("four UK interest rate cuts next year" was not his view but referred instead to market pricing, so nothing new).
• Periphery and semi-core EGB spreads closed tighter alongside a rally in global equities, with 10Y BTP/Bund hitting the tightest levels since 2021. OATs also managed to tighten ahead of the result of the no-confidence vote in the government.
• Thursday brings Eurozone manufacturing/industrial data (Germany, France, Spain); in the UK we get the DMP survey and an appearance by BoE's Greene.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1bps at 1.951%, 5-Yr is up 1.4bps at 1.917%, 10-Yr is up 0.7bps at 2.061%, and 30-Yr is up 1bps at 2.287%.
• UK: The 2-Yr yield is up 1.1bps at 4.236%, 5-Yr is up 1.7bps at 4.112%, 10-Yr is up 0.6bps at 4.249%, and 30-Yr is up 0.7bps at 4.775%.
• Italian BTP spread down 3.5bps at 115.5bps / French OAT down 2.1bps at 83bps