EGB/Gilt: Mid-Week Breather Following Earlier Rally

European government bonds have traded weaker this morning, although there has been limited unwinding of the gains made earlier in the week. Equities have pushed lower again while oil is incrementally higher

• UK monthly GDP data for May came in stronger than expected (0.5% M/M vs 0.1% expected) with industrial production and construction activity leading the rebound.
• The list of candidates to replace outgoing UK PM Boris Johnson has narrowed to 8 from 12, with notable dropouts being Sajid Javid and Priti Patel.
• Gilts initially opened lower before reclaiming loses and then reversing course again to now trade marginally below yesterday's close. Yields are broadly 1bp lower on the day.
• Eurozone industrial production similarly expanded faster than expected in May (1.6% Y/Y vs 0.3% expected).
• Speaking on French radio, the ECB's Francois Villeroy de Galhau earlier stated that the euro exchange rate is being monitored closely as it is important for inflation.
• Bunds have sold off at the curve has bear flattened. The 2s30s spread has narrowed 6bp.
• The OAT curve has similarly flattened with the 2s30s trading down 2bp.
• The BTP curve has sharply twist flattened at the very long end with the 2-year yield up 5bp and the 50-year yield down 5bp. Sub-10-year yields are 1-7bp higher on the day.
• Supply this morning came from Germany (Bund, EUR1.325bn allotted) and Italy (BTP, EUR7bn)