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The selling pressure of the last two days has subsided somewhat, with European government bonds trading above yesterday's close in the short-end and belly of the curve. Stocks have similarly regained some composure, while G10 FX have made broad gains against the dollar.

  • Gilts opened higher with the longer end of the curve giving back the early gains, underpinning the twist steepening move. Yields at the short-end are 4-5bp lower on the day.
  • Bunds have partially reversed some of the morning's gains while still trading higher on the day. Cash yields are now 1-3bp below yesterday's close.
  • Mirroring the move in gilts, the OAT curve has twist steepened with the 2s30s spread widening 6bp.
  • With a fresh bout of political instability in the background, BTPs have bucked the regional trends with much of the curve selling off and yields 1-5bp higher. The very long end, however, has firmed on the day.
  • The ECB's Olli Rehn said that the ECB is likely to hike 25bp next week and 50bp in September. This follows some speculation that the ECB could front-load the tightening cycle with a 50bp move in July, although there appears to be no consensus for this within the GC.
  • Supply this morning came from the UK (UKTBs, GBP1.0bn).
  • The European data slate was limited this morning. Focus now shifts to US retail sales and industrial production data, as well as the University of Michigan consumer confidence series.

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