EGBs-GILTS CASH CLOSE: Bull Steepening In Pre-Weekend Risk Off Move

European curves bull steepened Friday amid strong gains at the short-end, with central bank hikes continuing to get priced out after the ECB meeting yesterday and ahead of the Fed and BoE decisions next week.

• After a fairly quiet start to the European session, highlighted by ECB hawks eyeing further rate hikes sending EGB yields marginally higher, safe havens began rallying as bank stocks dropped sharply throughout the rest of the day.
• There was no specific trigger, more a resumption of concerns over Credit Suisse and US banks, with angst over possible developments over the weekend. Reuters reported Credit Suisse executives would meet over the weekend to discuss options for the bank's future.
• ECB terminal rate pricing fell back 12bp to 3.20%; a 25bp BoE hike next week is less than 50% priced, with terminal dropping as much as 23bp to 4.17%.
• After initially tightening, periphery EGB spreads widened as equities pulled back.
• With a quiet schedule Monday (ECB Lagarde appearance aside), attention over the weekend will continue to be paid to banking sector risks.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 22bps at 2.388%, 5-Yr is down 22.5bps at 2.093%, 10-Yr is down 18.2bps at 2.108%, and 30-Yr is down 15.5bps at 2.157%.
• UK: The 2-Yr yield is down 17.4bps at 3.241%, 5-Yr is down 17.2bps at 3.17%, 10-Yr is down 14.1bps at 3.284%, and 30-Yr is down 9.7bps at 3.756%.
• Italian BTP spread up 4.8bps at 194.6bps / Spanish up 2.7bps at 112bps