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EGBs-GILTS CASH CLOSE: BTP Outperforms Amid Broad Rally

BONDS

European FI had a constructive session Tuesday, with BTPs outperforming in the space as risk assets gained.

  • The German and UK curves bull flattened, initially helped by a dovish tone overnight from the BoJ at its meeting appearing to lack conviction on future policy normalisation. Yields didn't quite close on the lows, but thereabouts. Bund yields closed above 2%, with Gilts holding the May lows.
  • But peripheries, led by Italy, were the star performers: 10Y BTP spreads posted their tightest close to Bunds since early August, now approaching the June 2023 low just above 156bp.
  • No particular triggers were evident, with the benign PEPP runoff outlined by the ECB last week, and a risk-on atmosphere (equities gaining) today, helping narrow the spread. ECB speakers were largely shrugged off (Villeroy eyeing a rate "plateau" before cuts, Simkus pushing back on cuts).
  • In data, final Nov Eurozone HICP was revised a touch lower on the M/M but unch from flash Y/Y; the underlying ECB metrics showed significant further disinflationary progress however.
  • Wednesday's early highlight is UK CPI (our preview is here); later is a speech by ECB's Lane.

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

  • Germany: The 2-Yr yield is down 4bps at 2.513%, 5-Yr is down 5.2bps at 2%, 10-Yr is down 6.3bps at 2.016%, and 30-Yr is down 7.4bps at 2.205%.
  • UK: The 2-Yr yield is down 2.7bps at 4.293%, 5-Yr is down 7.3bps at 3.676%, 10-Yr is down 4.3bps at 3.652%, and 30-Yr is down 2.5bps at 4.152%.
  • Italian BTP spread down 7bps at 161.5bps / Spanish down 3.2bps at 94.4bps
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