EGB/Gilt: ECB In Focus

European sovereign bonds have traded weaker this morning following yesterday's bull flattening, with equities inching higher.

• Gilts started the session on a strong footing, but have gradually given back some of the early gains while still trading marginally above yesterday's close.
• The sell-off in German bonds has been more emphatic with yields 1-4bp higher and the curve 3bp steeper.
• It is a similar story for OATs where yields have edged up 1-4bp. Last yields: 2-year -0.6176%, 5-year -0.5622%, 10-year -0.0739%, 30-year 0.7004%.
• BTPs have underperformed with yields 2-5bp higher and the curve 3bp steeper.
• Supply this morning came from the UK (Gilts, GBP4.25bn), Germany (Linkers, EUR507mn allotted), Spain (Letras, EUR6.476bn), Belgium (TCs, EUR1.6bn) and Austria (RAGBs, EUR1.38bn).
• German retail sales data for January and unemployment figures for February came in worse than expected. Retail sales contracted 8.7% Y/Y vs +1.7% Y/Y survey and 1.5% the previous month, while unemployment increased by 44k vs 10.0k survey and follows a 76.2k increase in January.
• Focus this week is on the Thursday ECB policy meeting, which comes amid increased market concerns about inflation, and concern among policymakers about the impact of tighter financial conditions.