EGBs-GILTS CASH CLOSE: Bull Flattening Rally On US CPI Relief

EGBs and Gilts joined Treasuries in a broad-based bull flattening rally Wednesday as US data came in on the soft side of expectations.

• Core European instruments had already gotten off to a strong start, attributed to overnight reports that China could enact significant stimulus via government purchases of unsold homes. Eurozone prelim Q1 GDP data was as expected and had little impact.
• US core CPI was in line with median consensus but on the low side on an unrounded basis with unworrying details; the US retail sales report was the weakest in 3 months.
• Central bank easing expectations increased, with implied 2024 ECB cuts up 7bp on the day to 74bp, and BoE 5bp to 61bp.
• But the main impact was further down the curve, with yields from 5-year through 30-year down double digits in both the UK and Germany.
• Periphery EGB spreads tightened, led by BTPs, as risk appetite picked up on the US data miss.
• Thursday's highlights include BoE's Greene and a slew of ECB speakers (de Cos, Nagel, Villeroy, Centeno, Panetta, and Guindos presenting the semi-annual ECB Financial Stability Review).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 9.2bps at 2.895%, 5-Yr is down 12.1bps at 2.457%, 10-Yr is down 12.6bps at 2.422%, and 30-Yr is down 10.8bps at 2.572%.
• UK: The 2-Yr yield is down 7.8bps at 4.244%, 5-Yr is down 9.9bps at 3.95%, 10-Yr is down 10.7bps at 4.066%, and 30-Yr is down 10.9bps at 4.543%.
• Italian BTP spread down 2.9bps at 131.3bps / Spanish down 1.3bps at 77.2bps