EGBs-GILTS CASH CLOSE: Bear Flattening With Euro CPI Awaited

Short-end UK and German yields rose modestly Monday with limited movement further down the curves.

• The bear flattening came as ECB and BoE hike expectations ticked higher (ECB terminal +5bp, BoE +3bp), carrying over from last week's hawkish moves.
• But there were few macro or headline drivers to start the week (German IFO was a little better than expected), keeping Bunds and Gilts trading in tight ranges.
• ECB's Schnabel said (in an April 20 interview published today) that a 50bp May hike was "not off the table", but this would be data-dependent. This had little impact on implied rates, which had already been edging higher all session.
• German yields closed the session at the highs, with the Schnabel comments helping catalyse a bit of weakness focused on the short end.
• Villeroy's comments (may be a need for more rate hikes; hikes should be limited in size and number), came on the cash close and judging from futures don't appear to have made much of an impact.
• The undoubted focus of the week is on Friday's Euro CPI readings, which will make or break the case for 25bp vs 50bp at next week's ECB meeting.
• In the meantime, Tuesday sees an MNI event with ECB's Enria.

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

• Germany: The 2-Yr yield is up 5.6bps at 2.977%, 5-Yr is up 3.9bps at 2.56%, 10-Yr is up 2.7bps at 2.508%, and 30-Yr is up 0.9bps at 2.559%.
• UK: The 2-Yr yield is up 5.8bps at 3.804%, 5-Yr is up 3.3bps at 3.654%, 10-Yr is up 2.3bps at 3.781%, and 30-Yr is up 2.3bps at 4.12%.
• Italian BTP spread up 0.1bps at 187.2bps / Spanish down 0.5bps at 103.4bps