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EGB/Gilt: Sovereign Curves Steepen

BOND SUMMARY

European government bond curves have steepened at the start of week, driven largely by the longer end selling off. Equities have sold off, commodities are broadly lower and the dollar has gained against G10 FX.

  • The Fed's progressive tightening, Covid lockdowns in China, the ongoing push by Western states to weaken the Russian economy and the BoE's warning last week of a potential UK recession, have all contributed to the deteriorating global economic outlook. Meanwhile, concerns over the persistence of inflation are keeping fixed income under pressure.
  • Gilts have sold off sharply, particularly at the longer end. The 2s30s spread has widened 8bp.
  • The bund curve has twist steepened 9bp.
  • The OAT curve has traded in a similar manner with the 2s30s spread pushing up 7bp.
  • BTP yields are now up 5-9bp on the day with the belly of the curve underperforming.
  • Supply this morning came from Germany (Bubills, EUR1.445bn allotted). Later today France will offer EUR1.6-2.8bn of BTFs.
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