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EGB/Gilt: Recession Fears Mounting

BOND SUMMARY

European government bonds have traded firmer this morning alongside broad losses for equities and G10 FX vs the dollar. Mounting concerns about recession risks and a fresh surge in Covid infections in China has underpinned the risk-off move.

  • BoE Governor Andrew Bailey warned that the global economic outlook has "deteriorated materially" and specifically cited the impact of the Russia-Ukraine war.
  • UK government bonds have rallied with cash yields 3-5bp lower on the day.
  • Bunds have similarly pushed higher with yields down 4-7bp and the curve bull steepening.
  • It is a similar story for OATs where the 2s30s spread is 3bp wider.
  • The BTP curve has twist steepened with the 2s30s spread trading up 2bp.
  • Supply this morning came from the UK (Gilts, GBP2.0bn), Germany (ILB, EUR416mn allotted), Spain (Letras, EUR5.334bn), Belgium (TCs, EUR2.055bn), Austria (RAGB, EUR747.5mn) and the ESM (Bills, EUR1.064bn).
  • Focus shifts to US durable goods and factory orders for May, published later today.
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