EGB/Gilt: EZ FI Trades Lower While Gilts Hold On To Gains

European government bonds broadly firmed early into the session with gilts holding on to most of the initial gains while euro area bonds have sold off.

• Having opened higher, gilts have traded sideways through the morning with yields 7-10bp lower on the day.
• UK data on payrolled employees for May was higher than expected (90k vs 70k) although the previous month was revised lower (107k vs 121k) and the 3m/3m employment change series for April surprised higher (177k vs 106k). Headline wage data missed in April (6.8% 3M Y/Y vs 7.4%) , while the ex-bonus series was slightly higher than consensus (4.2% vs 4.0%).
• With the FOMC announcement up tomorrow, speculation around the possibility of a 75bp hike have been building. That the ECB indicated last week that a 50bp hike in September is likely, signals the increasingly hawkish direction of monetary policy.
• Bunds have continued to inch lower, extending the sell-off following last week's ECB meeting.
• OAT yields are broadly 1-3bp higher on the day, although the very long end of the curve has marginally firmed.
• BTPs have underperformed core EGBs with yields up 3-9bp and the curve bear flattening.
• Supply this morning came from Germany (Schatz, EUR4.5818bn allotted), Italy (BTPs, EUR6bn), Spain (Letras, EUR1.796bn), Belgium (TCs, EUR2.06bn).