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EGB/Gilt: Risk-Off Continues

BOND SUMMARY

European government bonds have rallied sharply this morning while equities push lower, marking a continuation of yesterday's broadly risk-off move.

  • The combination of rising recessionary risks on the back of more aggressive monetary tightening and concerns over a fresh wave of Covid infections have underpinned the latest bout of risk aversion.
  • Gilts rallied from the open with yields down 13-15bp on the day.
  • Former Chancellor of the Exchequer Rishi Sunak has won backing from former cabinet ministers Dominic Raab and Grant Shapps in his bid to replace the outgoing UK prime minister.
  • The bund curve has bull flattened. Cash yields are down 8-14bp while the 2s30s spread has narrowed 6bp.
  • It is a similar story for OATs where the curve is 5bp flatter on the back of the long end outperforming.
  • BTPs have firmed with yields 5-12bp lower on the day,.
  • Supply this morning came from the UK (Gilt, GBP2.75bn) Germany (Schatz, EUR4.513bn allotted) Italy (BTOs, EUR7bn), Spain (Letras, EUR1.796bn) and Belgium (TCs, EUR3.005bn)
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