EGBs-GILTS CASH CLOSE: Bear Steepening Resumes

Core European FI weakened Monday higher ahead of event risk later in the week.

• Yields extended higher throughout most of the session on relatively low volumes, with curves steepening.
• 10Y Bund and Gilt yields neared last week's highs, but unlike their US counterparts which hit 2007 levels, did not quite break higher.
• Given the bear steepening move, though, it appears that the higher-for-longer-trade seen for most of last week has resumed.
• An overnight risk-off move following a smaller-than-expected lending rate cut by China saw limited follow-through in Europe. With sparse data (German PPI was more deflationary than expected but triggered little reaction) and no speakers, attention was kept on global flash PMIs and Powell and Lagarde speeches at Jackson Hole later this week.
• Periphery spreads tightened modestly, led by BTPs.
• This week's thin issuance schedule (Belgium sold OLOs today) continues Tuesday with Gilt Linkers and possible EFSF syndication.
• Tuesday we also get UK public finance and Eurozone current account data.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 5.7bps at 3.116%, 5-Yr is up 7.9bps at 2.705%, 10-Yr is up 8.1bps at 2.703%, and 30-Yr is up 6.9bps at 2.8%.
• UK: The 2-Yr yield is up 4.1bps at 5.236%, 5-Yr is up 6bps at 4.75%, 10-Yr is up 5.4bps at 4.729%, and 30-Yr is up 5.1bps at 4.925%.
• Italian BTP spread down 1.3bps at 169.4bps / Spanish down 0.7bps at 104.8bps