EGBs-GILTS CASH CLOSE: Bull Steepening As ECB Cut Pushback Proves Limited

European yields fell Thursday amid a lack of hawkish surprises from the ECB and soft economic data on both sides of the Atlantic.

• While weaker-than-expected German IFO data early in the session didn't have much immediate market impact, it set the tone for a constructive session for core FI.
• Mixed US data released between the unsurprising ECB statement and the Lagarde press conference was met with a dovish reaction, with focus on a very soft quarterly inflation reading and a tick higher in jobless claims.
• As for the Lagarde presser, the lack of significant pushback against market rate cut pricing was marginally dovish: there are now 142bp of reductions expected this year, 12bp more than pre-US data/Lagarde, with implied probability of nearly 84% that the first cut will arrive by April (up from 60%).
• Curves finished bull steeper, led by a German short-end rally amid a rebound in ECB rate cut expectations.
• Periphery EGB spreads tightened on the more dovish monetary policy outlook, led by GGBs.
• While there is only largely 2nd tier European data out Friday, we hear from ECB policymakers including Simkus, Kazaks, and Vujcic, and get the ECB Survey of Professional Forecasters.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 9.2bps at 2.617%, 5-Yr is down 7bps at 2.187%, 10-Yr is down 5.2bps at 2.29%, and 30-Yr is down 2.3bps at 2.499%.
• UK: The 2-Yr yield is down 3.4bps at 4.385%, 5-Yr is down 4.2bps at 3.916%, 10-Yr is down 2.7bps at 3.983%, and 30-Yr is down 1.3bps at 4.594%.
• Italian BTP spread down 2.2bps at 153.7bps / Greek down 3.4bps at 100.2bps