EGBs-GILTS CASH CLOSE: Bear Steepening Move Falters Late

Gilts and Bunds shifted from a bear steepening move in the morning, to a bear flattening in the afternoon as short-end yields consolidated their rise and yields on 10s through 30s faded lower. Overall though, the initial move proved too much to overcome, with curves steeper on the day.

• Main catalyst for the afternoon move was higher-than-expected US producer price data, which kept pressure on short-/intermediate Tsys, with Europe mirroring.
• Earlier in the session, BTPs sold off on a BBG report that the Draghi gov't will try to bring forward up to E40bn of new borrowing. Spreads wider on the session, w Italy underperforming the periphery.
• Otherwise, data (weak German and French IP) and speakers didn't really have a lasting impact.
• Attention next week is on UK Feb GDP Tuesday, with EGB issuers including EFSF, Netherlands, Italy and Germany (and possibility of Ireland, Finland, or Slovakia also).

Closing yields/10-Yr Spreads to Bunds:

• Germany: The 2-Yr yield is up 1.2bps at -0.702%, 5-Yr is up 3.5bps at -0.633%, 10-Yr is up 3.3bps at -0.303%, and 30-Yr is up 1.8bps at 0.242%.
• UK: The 2-Yr yield is unchanged at 0.046%, 5-Yr is up 1.3bps at 0.353%, 10-Yr is up 2.5bps at 0.774%, and 30-Yr is up 2.1bps at 1.305%.
• Italian BTP spread up 3.2bps at 103bps/ Spanish up 1bps at 68bps