EGBs-GILTS CASH CLOSE: Afternoon Rally Ahead Of Fed, BoE

Bunds outperformed Gilts Wednesday as US developments set a bullish tone, helping reverse early weakness.

• In a quiet session for European data/speakers (a holiday was observed across much of the region), a combination of smaller-than-expected announced US supply at the Treasury's quarterly refunding and a weak ISM Manufacturing PMI print spurred afternoon gains in risk assets and core FI alike, led by a strong long-end UST rally.
• The UK curve twist flattened with 2Y yields higher ahead of Thursday's BoE decision (our preview went out this morning). Bunds outperformed in a German curve bull flattening move out to the 10Y segment.
• Periphery EGB spreads clawed back earlier losses in the afternoon, with 10Y BTP/Bund spreads tightening from wides above 200bp.
• The Federal Reserve decision and communications will be the focus this evening, and Thursday's European schedule is busy.
• The morning sees the Norges Bank decision, German labour market data, final Oct PMIs, and an appearance by ECB's Lane. We also get Spanish and French supply.
• Later, the BoE decision is set to be the main event: with a rate hold almost assured, MNI thinks the main driving factor is likely to be the vote breakdown, with <3 hawkish dissenters potentially seeing a small dovish reaction in markets.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.5bps at 2.991%, 5-Yr is down 3.9bps at 2.616%, 10-Yr is down 4.2bps at 2.764%, and 30-Yr is down 2bps at 3.074%.
• UK: The 2-Yr yield is up 1.7bps at 4.797%, 5-Yr is down 0.8bps at 4.458%, 10-Yr is down 1.3bps at 4.499%, and 30-Yr is down 1.5bps at 4.961%.
• Italian BTP spread up 4.3bps at 196.3bps / Spanish down 0.3bps at 107.4bps