BONDS: EGBs-GILTS CASH CLOSE: Yields Test August Lows Ahead of ECB

Risk-off trade remained the dominant theme Wednesday as Gilts and Bunds extended their yield drop to a 7th consecutive session.

• Bunds and Gilts opened firmer, owing partly to the overnight unwind of reflationary trades after Wednesday night's US presidential debate boosted VP Harris's bookmaker-implied winning probability. Softer than expected UK activity data also contributed.
• The key event was US CPI, the core component of which came in well above expectations. Coming against the backdrop of next week's Fed decision, this all but priced out a 50bp cut in favour of 25bp.
• That initially saw short-end yields back up to session highs as global central bank cuts were priced out. But concerns over the broader macro impact of relatively tighter monetary policy won out in the end, ultimately helping revive the ongoing global growth slowdown-related bid for bonds.
• European yields tested the August lows. On the day, Gilts outperformed Bunds, with both curves seeing bull steepening.
• Periphery spreads narrowed slightly, led by GGBs and BTPs.
• Thursday's highlight is the ECB decision - a 25bp cut is unanimously expected and fully priced in - MNI's preview is here (PDF).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany