BONDS: EGBs-GILTS CASH CLOSE: Tentative Stabilisation As ECB Cut Nears

European FI stabilized Tuesday after two consecutive weak sessions, with Gilts modestly outperforming Bunds.

• Short-ends/bellies outperformed on regional curves in steepening moves (Germany's lightly twist steepening, the UK's bull steepening), as equities sold off overnight on China economic stimulus disappointment.
• The early rally faded, though no single factor was evident. In data, German industrial production growth surprised to the upside, a development we had flagged was possible yesterday.
• Bundesbank President Nagel said he was “open” to an October cut, with the noted hawk's comment serving to confirm market pricing for next week's decision (still over 90% implied of a 25bp cut).
• Periphery EGBs started on the back foot in line with the initial risk-off cross-asset move, but spreads tightened as equities recovered from session lows.
• Wednesday's docket includes German trade data, and ECB commentary from Villeroy and Elderson.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.9bps at 2.228%, 5-Yr is down 2bps at 2.103%, 10-Yr is down 1.3bps at 2.243%, and 30-Yr is up 0.2bps at 2.538%.
• UK: The 2-Yr yield is down 2.9bps at 4.194%, 5-Yr is down 3bps at 4.072%, 10-Yr is down 2.4bps at 4.184%, and 30-Yr is down 1.4bps at 4.716%.
• Italian BTP spread down 1.5bps at 130.1bps / Spanish down 1.7bps at 74.9bps