EGBs-GILTS CASH CLOSE: BTPs Shine As Week Ends On Stronger Note

European yields pulled back Friday, partially reversing rises earlier in the week, though the recent German curve flattening trend remained intact.

• The German and UK curves bull flattened (after twist flattening Thursday and bear flattening Wednesday), amid a rebound in ECB / BoE cut pricing from recent extremes. An in-line German IFO reading and modest uptick in Eurozone consumer 1-year inflation expectations had little impact.
• As with many intraday moves this week, afternoon price action had no evident catalyst, with a rally extending into the cash close as equities pulled back from recent highs.
• The rate move defied a parade of ECB speakers who appeared to push back on near-term cut pricing in coordinated fashion. That included the typical hawks (eg Holzmann, Muller, Nagel), but the doves too (though Centeno said the ECB must be open to a March cut even if unlikely, Stournaras and Simkus ruled one out, eyeing summer as more likely).
• Periphery EGBs impressed, with 10Y Italian spreads to Germany moving to the tightest levels since 2022 amid the ongoing risk rally.
• Germany 2s10s finished the week nearly 9bp flatter (flattest close since Dec 27), while the UK equivalent was around 0.5bp flatter.
• Next week will be busy, with the main highlight being the February flash round of Eurozone inflation.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.2bps at 2.853%, 5-Yr is down 7.5bps at 2.373%, 10-Yr is down 7.7bps at 2.363%, and 30-Yr is down 6.4bps at 2.493%.
• UK: The 2-Yr yield is down 6bps at 4.542%, 5-Yr is down 6.5bps at 4.088%, 10-Yr is down 6.8bps at 4.037%, and 30-Yr is down 4.4bps at 4.586%.
• Italian BTP spread down 3.8bps at 143.7bps / Spanish down 1.6bps at 88.9bps