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BONDS: EGBs-GILTS CASH CLOSE: BTPs Notable Underperformers After ECB Cut

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European yields rose sharply Thursday, with periphery EGBs underperforming.

  • Soft US producer price and jobless claims data helped push core FI to session highs as the post-ECB meeting press conference got underway, but Bunds and Gilts would fully reverse those gains and head lower by the cash close.
  • While the ECB cut by 25bp as had fully been expected, and dropped language saying it would keep policy "sufficiently restrictive", Lagarde's tone seemed less dovish, noting two-sided risks to inflation.
  • Around 7bp of cuts were priced out through the next 6 meetings, though around 125bp is still foreseen (a Bloomberg sources piece after the cash close pointed to two 25bp cuts at the next two meetings, less than market-implied, but had little impact).
  • The lack of dovish follow-through from Lagarde saw Bunds lead a steady sell-off, with periphery spreads hard-hit, in particular BTPs on prospects of less monetary easing, with 10Y spreads widening 8+bp.
  • The German curve belly underperformed, with the UK's leaning bear steeper (though 5s underperformed 2s and 10s).
  • Friday's scheduled highlight will be UK monthly activity data, along with ECB speakers (scheduled are Villeroy, Holzmann, Centeno)

Closing Yields / 10-Yr EGB Spreads To Germany

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European yields rose sharply Thursday, with periphery EGBs underperforming.

  • Soft US producer price and jobless claims data helped push core FI to session highs as the post-ECB meeting press conference got underway, but Bunds and Gilts would fully reverse those gains and head lower by the cash close.
  • While the ECB cut by 25bp as had fully been expected, and dropped language saying it would keep policy "sufficiently restrictive", Lagarde's tone seemed less dovish, noting two-sided risks to inflation.
  • Around 7bp of cuts were priced out through the next 6 meetings, though around 125bp is still foreseen (a Bloomberg sources piece after the cash close pointed to two 25bp cuts at the next two meetings, less than market-implied, but had little impact).
  • The lack of dovish follow-through from Lagarde saw Bunds lead a steady sell-off, with periphery spreads hard-hit, in particular BTPs on prospects of less monetary easing, with 10Y spreads widening 8+bp.
  • The German curve belly underperformed, with the UK's leaning bear steeper (though 5s underperformed 2s and 10s).
  • Friday's scheduled highlight will be UK monthly activity data, along with ECB speakers (scheduled are Villeroy, Holzmann, Centeno)

Closing Yields / 10-Yr EGB Spreads To Germany

Keep reading...Show less