EGB/Gilt: Inflation Fears Drive Sovereign FI Lower

European government bonds have continued selling off with gilts leading the charge. Equities are also broadly lower while oil has edged higher.

• Absent any obvious price catalysts this morning, the sell-off in fixed income continues to reflect concerns about ever higher inflation and aggressive monetary policy tightening as central banks catch up with the unfolding reality.
• The UK has been in the spotlight recently given that headline inflation has now breached 10% and analysts have warned about the possibility of a further sharp acceleration at the turn of the year as the energy price cap is increased.
• Gilts have significantly underperformed EGBs, particularly at the short end. Yields are up 2-18bp on the day with the 2s10s spread narrowing 10bp and 2s30s 13bp.
• Bund yields are up 1-5bp across much of the curve which is 4-5bp flatter.
• OAT yields are now up 2-4bp on the day.
• BTPs have similarly sold off, but it is the longer end of the curve that has underperformed. Yields are up 3-5bp with the long end of the curve steepening slightly.
• Supply this morning came from Germany (Bund ,EUR3.32bn allotted), Greece (GTBs, EUR625mn).