Divergence between gilts and Bunds

Relative to the past few sessions, fixed income is taking a bit of a breather but is still seeing what would usually be considered decent moves with the German curve bull steepening and the gilt curve bear flattening.

• The UK story has focused on a new Chancellor who may be more open to looser fiscal policy (and hence seeing yields rise at the front-end). We have also had comments from BOE's Cunliffe (one of the more dovish members) suggesting that the MPC will need to continue to act to keep inflation under control. The political turmoil of the UK with the resignation of a number of ministers including the Chancellor and the Health Secretary since last night has not really moved markets too much outside of this.
• The focus in Europe, by contrast, has been more on the prospects of a recession despite some better than expected German factory order and Spanish industrial orders data.
• Looking ahead we have the FOMC Minutes later as well as the final print of the US services PMI and JOLTs.
• TY1 futures are unch today at 119-29+ with 10y UST yields up 0.6bp at 2.814% and 2y yields up 1.7bp at 2.838%.
• Bund futures are up 0.07 today at 151.31 with 10y Bund yields up 0.7bp at 1.232% and Schatz yields down -4.4bp at 0.376%.
• Gilt futures are up 0.01 today at 116.09 with 10y yields up 2.3bp at 2.070% and 2y yields up 4.4bp at 1.699%.