BONDS: EGBs-GILTS CASH CLOSE: Yields Hit Month's Lows On Weak PMIs

EGBs and Gilts rallied sharply Friday after PMI data heightened concern over Eurozone growth.

• EGB curves bull steepened after November flash Eurozone PMIs came in weaker than expected, particularly in services - helping fuel bets on an outsized 50bp cut at the December meeting of the ECB, which has been increasingly focused on downside growth risks.
• UK PMIs were likewise weak but Gilt reaction was comparatively limited outside of the spillover from the Euro move (softer than expected UK retail sales were shrugged off).
• ECB December cut pricing jumped to ~12% of a 50bp cut to around 60% in the immediate PMI aftermath. Bund and Gilt yields hit fresh November lows, with periphery and some semi-core EGBs unable to keep pace.
• Notably OATs remained under pressure, with the 10Y spread to Bunds 1.9bp wider and closing above the 80bp mark amid continued political/fiscal concerns (and potential rating deterioration, with S&P potentially placing the sovereign on negative outlook next week).
• Speaking of ratings, Moody’s are set to review Italy’s after the cash close Friday, with its current Baa3 (Outlook Stable) one notch below that of S&P and Fitch (both BBB, last reviewed on Oct 18). An outlook upgrade is seen as possible.
• Next week brings the November round of preliminary Euro HICP, which could prove decisive for the December rate decision.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany