EGBs-GILTS CASH CLOSE: BTPs Outperform As Core FI Reverses Higher

An early sell-off Monday fully had reversed by the cash close, with Bunds and Gilts benefiting from a bid in US Treasuries.

• Bunds underperformed Gilts, though an early German bear steepening flipped to flattening as the USD weakened and equities rose alongside a broader move lower in rates. Gilts leaned bull flatter overall (2s30s flatter, 2s10s a little steeper on the day).
• It was difficult to pinpoint a specific reason for the reversals, which accelerated after high-profile market participants (incl Bill Ackman and Bill Gross) expressed the view that the recent US yield rise had gone far enough.
• We note though that our Europe Pi positioning update today showed significant structural shorts across Eurex contracts, with the trade potentially getting overcrowded as yields pushed to fresh multi-year highs.
• BTPs outperformed, with 10Y spreads down 7bp after S&P affirmed the sovereign at BBB; Outlook Stable; Greek spreads were close behind, after attaining investment grade status at S&P Friday.
• Focus Tuesday is on flash October PMIs, with the ECB decision Thursday the clear focus for the week - MNI's preview went out today. The UK's ONS publishes new labour market data Tuesday morning (though won't publish the Jun-Aug LFS data).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.2bps at 3.134%, 5-Yr is down 0.3bps at 2.78%, 10-Yr is down 1.5bps at 2.874%, and 30-Yr is down 2.6bps at 3.068%.
• UK: The 2-Yr yield is down 5.7bps at 4.832%, 5-Yr is down 5.7bps at 4.579%, 10-Yr is down 5.2bps at 4.599%, and 30-Yr is down 6.2bps at 5.049%.
• Italian BTP spread down 7bps at 196.6bps / Greek down 6.6bps at 141.8bps