EGB/Gilt: UK Inflation Continues Push Higher

European government bonds have rallied this morning alongside gains for equities and most G10 currencies against the dollar.

• UK inflation pushed higher again in June, reaching 9.4% Y/Y above the consensus estimate of 9.3% and the 9.1% reading of the previous month. Core inflation printed in line with expectations at 5.8% Y/Y.
• Gilts opened higher and have firmed through the morning with cash yields down 9-11bp on the day.
• The list of candidates to succeed PM Boris Johnson has now been whittled down to former Chancellor of the Exchequer Rishi Sunak, Foreign Secretary Lizz Truss and Minister of State for Trade Policy Penny Mordaunt. Another voting round today will see the list reduced further to the final two, who will then be voted on by party members.
• Bunds have edged higher with yields 6-7bp lower.
• The OAT curve has bull flattened with yields down 2-8bp and the 2s30s spread narrowing 5bp.
• The BTP curve has bull steepened with yields 8-12bp lower and the 2s30s spread widening 4bp.
• Supply this morning came from Germany (Green Bund, EUR1.282bn allotted).
• Next up on the calendar will be the ECB meeting tomorrow with a Reuters report yesterday citing sources who indicated that a larger than expected 50bp policy rate hike is being expected. As a reminder, our ECB Preview was published yesterday and is available online and by email.