EGBs-GILTS CASH CLOSE: BTPs And Gilts Underperform

Gilts underperformed Bunds Tuesday, with European yields following Treasuries in reversing an early drop over the course of the day.

• Morning data was mixed: Spanish and Italian services PMI disappointed with contractionary readings, though the UK's was revised higher, and the ECB's consumer survey showed a tick higher in inflation expectations.
• ECB's Lane noted optimism on core inflation continuing to come down in the autumn, though Wunsch suggested that "we maybe need to do a little bit more" on rates.
• After drifting weaker most of the session, Gilts and Bunds ticked higher in early afternoon largely on more-dovish-than-expected comments by Fed Gov Waller - only for yields to later hit session highs on above-consensus US factory orders data and Fed's Mester eyeing potential for more hikes.
• The UK curve bear flattened, with Germany's bear steepening ahead of 10Y supply Wednesday.
• BTP spreads hit their widest since mid-July; Greece outperformed in a reversal of Monday's widening.
• German factory orders feature first thing Wednesday, with BoE's Bailey speaking later.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.2bps at 3.045%, 5-Yr is up 2.6bps at 2.596%, 10-Yr is up 3.3bps at 2.612%, and 30-Yr is up 5.5bps at 2.757%.
• UK: The 2-Yr yield is up 6.5bps at 5.271%, 5-Yr is up 6.4bps at 4.803%, 10-Yr is up 6.2bps at 4.525%, and 30-Yr is up 3.8bps at 4.793%.
• Italian BTP spread up 1.7bps at 172.8bps / Greek down 3.4bps at 131.6bps