EGBs-GILTS CASH CLOSE: Bellies Rally On Contractionary European PMIs

European yields continued to descend from Monday morning's highs on Tuesday, with both the German and UK bellies outperforming after soft preliminary October PMI data.

• The highlight of the session was the weak German services PMI (contractionary at 48.0 vs 50.0 expected), which combined with a poor French manufacturing print (1.9 point miss) saw Eurozone-wide PMI printing below expectations in both services and manufacturing.
• The UK's figures were largely in line (Services missed by 0.1pp, manufacturing beat by 0.5pp), while the details of the ONS's experimental labour market data evidenced some softening.
• The combined effect of the data was to marginally pull back on central bank hike expectations (still 1-2bp seen left in the ECB cycle, with BoE terminal down 2bp to just 9bp left) and pushed eventual cut pricing higher - helping curve bellies outperform.
• Despite the prospects of less monetary tightening and equity gains, periphery EGB spreads widened steadily throughout the session, led by Italy.
• Wednesday sees German IFO data, with the ECB communications Thursday the week's focus now that PMIs are out of the way.

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

• Germany: The 2-Yr yield is down 3.8bps at 3.096%, 5-Yr is down 5.6bps at 2.724%, 10-Yr is down 4.6bps at 2.828%, and 30-Yr is down 1.6bps at 3.052%.
• UK: The 2-Yr yield is down 4.3bps at 4.789%, 5-Yr is down 6.4bps at 4.515%, 10-Yr is down 6bps at 4.539%, and 30-Yr is down 4.7bps at 5.002%.
• Italian BTP spread up 3.3bps at 199.9bps / Spanish up 1.7bps at 111bps