EGB/Gilt: UK Inflation Hits Fresh High

European government bonds have traded mixed this morning with gilts posting gains and euro area bonds trading lower. Equities are broadly higher, but gains have been modest.

• Gilts have stabilised following yesterday's sharp sell off. Cash yields are 2-3bp lower on the day.
• UK headline CPI may have come in slightly below expectations (9.0% Y/Y vs 9.1% expected) but has nonetheless hit a 40-year high, while BoE Governor Andrew Bailey's stark comments earlier in the week on food price risks and controlling inflation continuing to ring loudly.
• ECB commentary has hit the wires again this morning following yesterday's comments from Knot.
• Olli Rehn stated that it was important to quickly move away from negative rates and suggested that the first hike could occur in the summer.
• Meanwhile, Pablo Hernandez de Cos stated that while rate hikes should be gradual given the uncertainty, hikes could nonetheless be made in the coming quarters.
• Bunds have traded lower across much of the curve, although the very long has firmed slightly.
• The OAT curve has similarly twist flattened with the 2s30s spread narrowing 8bp.
• BTPs have sold off with cash yields up 1-6bp and the curve bear flattening.