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EGBs-GILTS CASH CLOSE: Bobl Underperforms As ECB Talks Tools And Hikes

BONDS

EGBs and Gilts continued to weaken Tuesday, with some of the move attributable to stronger risk appetite, and a slight hint of ECB hawkishness at Sintra.

  • Most of the ECB speak Tuesday focused on the anti-fragmentation tool in the works; a Reuters sources piece in the morning pointed to a cash sterilisation element offsetting the liquidity impact of bond purchases.
  • While Lagarde reinforced 25bp hike pricing in July, Kazaks said a 50bp raise should be considered, while Wunsch noted the 200bp in hikes as priced by next March were a "no brainer".
  • End-2022 ECB hike pricing closed at a 4-session high (1.05%, +163bp vs current rates), which maintained pressure on the short end/belly of the German curve (Bobl underperformed).

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

  • Germany: The 2-Yr yield is up 5.2bps at 0.957%, 5-Yr is up 14.4bps at 1.433%, 10-Yr is up 8.1bps at 1.628%, and 30-Yr is up 7.6bps at 1.828%.
  • UK: The 2-Yr yield is up 10.3bps at 2.116%, 5-Yr is up 10.2bps at 2.142%, 10-Yr is up 7.2bps at 2.465%, and 30-Yr is up 6.8bps at 2.712%.
  • Italian BTP spread down 3.9bps at 193.2bps / Spanish down 1.2bps at 109.7bps
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