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EGB/Gilt: Core Rally Maintains Momentum

BOND SUMMARY

Bonds have rallied sharply this morning alongside hefty equity losses and a generally mixed performance across G10 FX.

  • Gilts opened higher and have continued to make gains through the day with the long-end of the curve outperforming. The 2s30s spread is now 5bp narrower.
  • Bunds have similarly had a decent run with cash yields 1-5bp lower on the day and the curve 4bp flatter.
  • BTPs have lagged the rally in core EGBs with yields within 1bp of yesterday's close.
  • Although debate around the future path of inflation continues to simmer in the background, market-implied expectations have eased somewhat. The EUR 5y5y forward inflation swap last traded at 1.5585, down from a recent closing high of 1.6238 on July 6, having comfortably held above the 1.50 level since the end of March. Elsewhere, German breakevens have begun to pull back from the multiyear highs with the 5-year benchmark trading down to 1.13 from a YTD high of 1.42.
  • Supply this morning came from Ireland (IGBs, EUR1.5bn).
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