EGBs-GILTS CASH CLOSE: Bull Flattening Rally As US CPI Misses

European yields dropped sharply Tuesday after a softer-than-expected US inflation report triggered a global FI rally.

• Core instruments had a fairly constructive morning. But the early moves paled in comparison to the move after the US CPI print (core +0.2% M/M vs 0.3% expected) and its details all but cemented the perceived likelihood of the Federal Reserve being finished with its hiking cycle.
• The post-data reaction saw deeper ECB and BoE cut pricing and a bull flattening in both the German and - to a greater degree, UK - curves.
• 10Y German yields hit the lowest since mid-Sept, with 10Y Gilt the lowest since early June.
• Periphery EGB instruments rallied alongside, with Italian spreads narrowing most, but GGBs failing to match the Bund rally.
• European data had limited impact in comparison to the US: EZ flash Q3 GDP was in line, with the headline German ZEW expectations above-survey.
• UK labour data out this morning was mixed, with attention turning to the CPI reading out Wednesday. MNI's UK inflation preview (and review of the labour market data) available at this link.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 9.3bps at 2.988%, 5-Yr is down 11.1bps at 2.553%, 10-Yr is down 11.3bps at 2.6%, and 30-Yr is down 9.5bps at 2.816%.
• UK: The 2-Yr yield is down 7.7bps at 4.584%, 5-Yr is down 14.1bps at 4.182%, 10-Yr is down 16.2bps at 4.152%, and 30-Yr is down 15.9bps at 4.576%.
• Italian BTP spread down 4bps at 181bps / Spanish down 1.7bps at 103.7bps