BONDS: EGBs-GILTS CASH CLOSE: Bull Flattening On US PPI And Tariff Rhetoric

European curves bull flattened Thursday as US inflation data and tariff threats continued to set the tone.

• Having already pared much of Wednesday's post-US CPI rise, helped this morning by further reciprocal tariff bluster from US President Trump and softer energy prices, Bund and Gilt yields pushed lower in the afternoon on US data.
• With the US PPI report signalling lower PCE price pressures than feared after the CPI data, global bonds rallied led by Treasuries.
• The UK curve continued to bull flatten after the data, with the move in Germany stalling out somewhat.
• On the day, German instruments outperformed UK counterparts across the respective curves, with the short-end outperformance particularly pronounced.
• The latter can be attributed to ECB 2025 implied cut pricing extending 4bp to just over 81bp amid lower European gas prices and the EU considered particularly vulnerable to Trump tariff threats, contrasted with the BOE equivalent relatively flat at 58bp.
• UK quarterly and monthly GDP data surprised to the upside, but it is unlikely to change the narrative for the BOE in the near-term.
• Periphery EGB spreads tightened, but French OATs stood out in the semi-core space with 10Y spreads falling 3bp vs Bund.
• Friday's scheduled data highlight is Eurozone prelim Q4 GDP, along with a variety of price measures.

Closing Yields / 10-Yr EGB Spreads To Germany