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EGB/Gilt: Rally Extends


European government bonds have rallied sharply this morning, extending the gains from the beginning of the week. Equities have sold off alongside weaker trading in energy and FX vs the dollar.

  • UK GDP contracted in March by 0.1% M/M and the quarterly reading came in below expectations (0.8% Q/Q vs 1.0% survey), further fueling downside pressure on cable. The sharp drop in exports during the first quarter (4.9% Q/Q vs 0.0% expected) is noteworthy.
  • Gilts have rallied and the curve has bull flattened. Cash yields are now down 7-11bp with the long end of the curve 4bp flatter.
  • Following the UK prime minister's pledge yesterday to support Sweden and Finland in the event of a military attack, the Finnish president and prime minister have announced their backing to apply for NATO membership.
  • Bund yields are down 9-12bp with the belly of the curve outperforming.
  • It is a similar story for OATs where yields are down 7-12bp.
  • The belly of the BTP curve has also outperformed amid the rally. Yields have pushed down 6-12bp.
  • Supply this morning came from Italy (BTPs, EUR3.75bn) Ireland (IGBs, EUR1.25bn).

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