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BONDS: EGBs-GILTS CASH CLOSE: Twist Steepening, Long-End Gilts Underperform

BONDS
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Short-end core yields and periphery EGBs outperformed Thursday, with Gilts notably underperforming.

  • US CPI, the week's main event, initially saw core global FI sell off on higher-than-expected readings, but the move reversed as the details looked more benign and the jobless claims report that came out alongside showed unexpected (potentially hurricane-related) weakness.
  • The German and UK curves both twist steepened, with yields falling at the short end of the curve.
  • Indeed, implied BoE and ECB cuts jumped after the US data, reversing a pullback earlier in the session, with cumulative cuts by mid-2025 upped 2bp and 4bp respectively on the day (25bp cuts at the respective upcoming meetings remained over 90% priced).
  • But Gilts underperformed at the long end, with uncertainty over the new government's budget a lingering theme.
  • Periphery EGB spreads tightened after the US data, mirroring the move in central bank cut pricing.
  • Friday brings UK monthly activity data, final German September CPI, and a speech by ECB's Holzmann.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

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Short-end core yields and periphery EGBs outperformed Thursday, with Gilts notably underperforming.

  • US CPI, the week's main event, initially saw core global FI sell off on higher-than-expected readings, but the move reversed as the details looked more benign and the jobless claims report that came out alongside showed unexpected (potentially hurricane-related) weakness.
  • The German and UK curves both twist steepened, with yields falling at the short end of the curve.
  • Indeed, implied BoE and ECB cuts jumped after the US data, reversing a pullback earlier in the session, with cumulative cuts by mid-2025 upped 2bp and 4bp respectively on the day (25bp cuts at the respective upcoming meetings remained over 90% priced).
  • But Gilts underperformed at the long end, with uncertainty over the new government's budget a lingering theme.
  • Periphery EGB spreads tightened after the US data, mirroring the move in central bank cut pricing.
  • Friday brings UK monthly activity data, final German September CPI, and a speech by ECB's Holzmann.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

Keep reading...Show less