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EGBs-GILTS CASH CLOSE: Bear Flattening Resumes


The German and UK curves continued Monday where they left off on Friday with more bear flattening, as dovish central bank hike prospects were reconsidered.

  • While curve inversions continue to deepen, the market action of the past couple of sessions has contrasted with the bull flattening seen in the first half of last week amid softer-than-expected Eurozone inflation readings.
  • With ECB and BoE peak rate prospects up 2-3bp on the day, Schatz and 2Y UK yields rose 8+bp and are up 19bp from last week's lows; for 10Ys, Bund is up 15bp from last week's low with Gilt up 11bp.
  • Central bank commentary didn't move the needle (ECB's Lagarde, Vujcic, Nagel), while European Services/Composite PMIs were mixed (and mostly finals).
  • A disinflationary US Services ISM report dragged down European yields in mid-afternoon, but they soon rebounded.
  • Periphery EGB spreads were little changed. The BTP Valore retail bond saw strong orders on its first day of sale (over E5.4bln).
  • Tuesday sees Eurozone retail sales and consumer survey, along with German factory orders.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 8.7bps at 2.889%, 5-Yr is up 6.6bps at 2.403%, 10-Yr is up 6.9bps at 2.381%, and 30-Yr is up 5.6bps at 2.545%.
  • UK: The 2-Yr yield is up 8.2bps at 4.445%, 5-Yr is up 6.7bps at 4.169%, 10-Yr is up 5.2bps at 4.208%, and 30-Yr is up 3.1bps at 4.511%.
  • Italian BTP spread down 0.1bps at 175.7bps / Spanish down 0.8bps at 99.5bps

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