EGB/Gilt: Renewed Lockdown Fears

European sovereign bonds have rallied sharply this morning and equities have traded lower on the back of renewed European lockdown fears.

• Austria has decided to re-enter national lockdown for vaccinated and unvaccinated people, while the German health minister has refused to rule out the possibility of another lockdown.
• Bunds have rallied with the belly of the curve slightly outperforming. Cash yields are 3-5bp lower on the day.
• It is a similar story for OATs where yields have pushed down 2-5bp and the curve is 2-3bp flatter.
• BTPs have underperformed core EGBs on the day with yields 1-3bp lower.
• Speaking in Frankfurt this morning, ECB President Christine Lagarde continues to assert that the inflation spike will be transitory and that the GC should not rush into a premature tightening of monetary policy.
• The ECB's Weidmann (outgoing) and BoE Chief Economist Huw Pill are due to speak later today.
• UK public borrowing was higher than expected in October with the headline reading ex public sector banks coming in at GBP18.8bn vs GBP14.0bn expected.
• Gilts have outperformed EGBs with cash yields down 6-7bp.
• Supply this morning came from the UK (Bills, GBP2bn).