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EGB/Gilt: Hawkish Bailey Triggers Bear Flattening

BOND SUMMARY

European sovereign bonds have traded weaker this morning, with gilts leading the charge following further hawkish rhetoric from the BoE over the weekend.

  • BoE Andrew Bailey warned on Sunday that the central bank would 'have to act' in response to rising inflationary pressures. Bailey's comments reflect the broader shift in central bank thinking on inflation which has seen more Fed officials expecting a rate hike in 2022, and some ECB policymakers suggesting that the risks to inflation are tilting to the upside.
  • The gilt curve has sharply bear flattened. Yields at the short end of the curve have pushed up 10-14bp on the day with the 2s30s spread now down 11bp.
  • The shorter end of the bund curve has similarly underperformed the broader sell off. Cash yields are 4-7bp higher across much of the curve.
  • BTPs have traded weaker with the belly of the curve underperforming.
  • The ECB's Vasle and de Cos will speaker later today.
  • The European data calendar was light this morning.
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