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EGB/Gilt: Easing China Covid Restrictions Fuels Risk-On Move

BOND SUMMARY

European government bonds have sold off alongside broad gains for equities and commodities. Signs of an improving outlook for China's current Covid wave with some relaxation of official social controls has underpinned the risk-on move.

  • Gilts opened lower at the start of the week with cash yields up 4-6bp.
  • Bunds have underperformed gilts with the curve bear flattening. Yields have pushed up 6-10bp with the 2s30s spread narrowing 3bp.
  • OAT yields are up 6-9bp with the curve 3bp flatter.
  • BTPs have underperformed core EGBs, particularly at the shorter end. Yields are up 6-13bp.
  • The ECB's Philip Lane has stated that it is appropriate to end negative policy rates by the end of Q3 and that 25bp hikes in July and September are the 'benchmark pace'.
  • Preliminary regional German CPI data for May show an acceleration from the previous month, ranging from +0.4pp to + 0.8pp (Saxony). The national estimate will be published at 1300GMT.
  • Supply this morning came from Germany (Bubills, EUR5.321bn allotted) and Greece (GGBs EUR400mn). Later today France will offer EUR4.4-5.6bn of BTFs.
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