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EGBs-GILTS CASH CLOSE: Broad Rally As Doves Have Their Day

BONDS

EGB and Gilt yields fell sharply Wednesday amid largely dovish ECB revelations.

  • Early in the session, EGBs rallied as ECB hawk Holzmann signalled support for a cautious approach on QT. And just before the cash close, MNI published an ECB sources piece pointing to potential for smaller hikes later in the year as inflation fades.
  • ECB terminal rate pricing fell 11bp on the session (below 140bp hikes by July) and combined with Holzmann's comments, periphery EGB spreads fell sharply. GGBs outperformed, while 10Y BTP/Bund spreads printed below 180bp for just the third time since April 2022.
  • SONIA rallied as well, with the Gilt curve flattening, with multiple factors cited including follow-through from Tuesday's huge BOE Financial Stability Sales operation.
  • Some of the rally was also attributed to position squaring ahead of US CPI, which is Thursday's (indeed the week's) focus; we also get an appearance by BoE's Mann and the ECB's economic bulletin.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 6.6bps at 2.588%, 5-Yr is down 12.2bps at 2.222%, 10-Yr is down 10.4bps at 2.204%, and 30-Yr is down 11bps at 2.139%.
  • UK: The 2-Yr yield is up 5.2bps at 3.53%, 5-Yr is down 13bps at 3.335%, 10-Yr is down 14.8bps at 3.409%, and 30-Yr is down 15.1bps at 3.756%.
  • Italian BTP spread down 8.3bps at 183.1bps / Greek down 12bps at 197bps

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