EGB/Gilt: Budget Hangover

Markets have shifted to a risk-off posture this morning with core EGBs rallying, equities pushing lower, commodities weak and the US dollar gaining against G10 FX.

• Gilts opened stronger and have gradually inched higher through the morning with the curve 2bp flatter.
• The bund curve has similarly bull flattened with the 2s30s spread 2bp narrower.
• OAT yields are up to 2bp lower on the day, with the very short end marginally outperforming.
• BTPs have similarly traded firmer, albeit broadly within 1bp of yesterday's closing level
• Following yesterday's UK budget, Chancellor of the Exhequer Rishi Sunak is today defending his decision to raise corporation tax to 25% from 19% in 2023. The decision to freeze income tax thresholds could similarly attract further criticism from Conservative backbenchers in the coming days.
• The UK construction PMI print for February came in better than expected (53.3 vs 51.0 survey). Elsewhere, Eurozone unemployment edged down to 8.1% in January vs 8.3% the previous month, while euro area retail sales for January missed by a wide margin (-5.9% Y/Y vs -1.4% survey).
• Supply this morning came from the UK (Gilts, GBP2.75bn), France (OATs, EUR 10.999bn) and Spain (Bonos/Oblis/Linkers, EUR5.449bn),