EGBs-GILTS CASH CLOSE: Bearish Intraday Reversal

European yields fully reversed a sharp intraday drop set after a soft US CPI report Thursday, with Bunds underperforming Gilts.

• Core FI was caught wrong-footed by the inflation print: 10Y Bund yields had risen by 15bp and Gilts 11bp this week going into the data, but those rises were trimmed by 8bp and 9bp respectively immediately after the release.
• Then the reversal more than reversed, with 10Y yields jumping 15bp from the lows, as the CPI data was eventually interpreted as not being a game-changer for the inflation path ahead or for Federal Reserve policy.
• The publication of an interview with ECB's Holzmann in which he eyed a 50bp May hike and a need to keep hiking beyond next month sent European yields to session highs.
• ECB hike pricing hit a post-Mar 10 high, with a peak Depo rate of 3.74% now seen in October - up 8bp on the day (and 23bp above session lows). BoE pricing was steady.
• Periphery spreads reversed most of the narrowing, with BTPs closing a couple of basis points tighter to Bunds.
• Thursday's schedule includes an MNI event with BoE's Pill, as well as UK GDP data and final Eurozone national CPI prints.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 9bps at 2.796%, 5-Yr is up 7.5bps at 2.397%, 10-Yr is up 5.9bps at 2.37%, and 30-Yr is up 5.6bps at 2.445%.
• UK: The 2-Yr yield is up 3.3bps at 3.519%, 5-Yr is up 2.1bps at 3.405%, 10-Yr is up 2.8bps at 3.57%, and 30-Yr is up 3.4bps at 3.895%.
• Italian BTP spread down 1.6bps at 184.5bps / Spanish down 0.8bps at 104bps