EGBs-GILTS CASH CLOSE: Bear Flattening Defies Manufacturing Weakness

The UK and German curves bear flattened Monday, shrugging off mostly soft Eurozone PMI data in the morning (highlighted by Italian manufacturing's worst month since April 2020).

• There was little in macro or headline developments to trigger the morning bear flattening move, which came as BoE and ECB terminal hike pricing hit 2023 highs amid thinned liquidity ahead of US market holidays starting later today through Tuesday.
• European bear flattening pulled back in the afternoon on a soft US ISM Manufacturing reading, but resumed as we headed into the close. German 2s10s closed at a fresh post-1992 inverted low (-82.8bp).
• The UK short end slightly underperformed its German counterpart, with BoE nominee Greene warning against complacency against inflation-fighting.
• Periphery EGBs were mixed, with BTPs underperforming with some modest spread widening.
• Tuesday brings some German trade and Spanish unemployment data and appearances by ECB's Nagel (who spoke today, sounding typically hawkish on the rate outlook, so not a market mover) and Stournaras. Markets are closed for the US Independence Day holiday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is up 6.4bps at 3.26%, 5-Yr is up 6.7bps at 2.617%, 10-Yr is up 4.5bps at 2.437%, and 30-Yr is up 0.6bps at 2.395%.
• UK: The 2-Yr yield is up 6.9bps at 5.343%, 5-Yr is up 5.4bps at 4.717%, 10-Yr is up 5.2bps at 4.44%, and 30-Yr is up 2.2bps at 4.445%.
• Italian BTP spread up 1.7bps at 169.7bps / Greek down 1bps at 126.9bps