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EGB/Gilt: UK Inflation Surprise Underpins Gilt Selling

BOND SUMMARY

European government bonds have traded weaker this morning with gilts underperforming EGBs. Oil continues to push higher, further stoking inflationary pressure, while the US dollar has been on the back foot against G10 FX.

  • UK inflation surprised higher in December, coming in at 5.4% Y/Y vs 5.2% survey - the highest level in 30-years.
  • Gilts have sold off with cash yields up 4-5bp and the shorter end of the curve slightly underperforming.
  • Bunds have traded weaker with the curve bear steepening, although some of the earlier losses have been reclaimed. Yields are now up 1-3bp on the day with the 2s30s spread widening 2bp.
  • OATs have similarly pushed lower with the belly of the curve underperforming.
  • BTPs sold off sharply earlier in the session before recovering lost ground with yields now 1-2bp above yesterday's close.
  • Supply this morning came from Germany (Bund, EUR1.326bn allotted), Portugal (BT, EUR1.5bn) and the Eurozone (Bills, EUR2bn). In addition there have been syndicated issues from Greece (10-year) and Austria (7-year, 20-year, 50-year).
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