EGB/Gilt: Post-Fed, Focus Turns To ECB & BoE

EGBs have firmed ahead of today's key ECB meeting while the gilt curve has steepened leading into the BoE meeting at midday.

• The gilt curve is now 1-2bp steeper on the day. Uncertainty is running high ahead of the BoE meeting. Although labour market data has been quite robust of late, and inflation continues to push higher, the impact of the Omicron variant on the economic recovery is unclear.
• The ECB also faces a similar predicament. With inflation continuing to accelerate, the official stance that it is transitory rather than persistent will come under further scrutiny. While many expect the GC to announce the end of PEPP in March and an increase in purchases under the APP, it is possible that specific details on purchase volumes are announced at a later date.
• While bunds have firmed across much of the curve, the very long end has steepened with the 2s30s spread 2bp wider.
• OATs now trade close to flat on the day.
• BTPs have rallied with cash yields 1-2bp lower on the day.,
• Preliminary December PMI data for Europe came in mixed relative to expectations, while continue to point to a sustained expansion in economic activity across the region. The most notable outlier was the German services PMI which printed 48.4 vs 51.0 expected.