EGBs-GILTS CASH CLOSE: Bullish Tone Ahead Of PMIs

The UK curve bull steepened with Germany's bull flattening Tuesday, with yields closing near session lows as the rally accelerated in late afternoon.

• Gilts outperformed Bunds, with the UK short- and long-ends outperforming the belly. The 30Y segment in Europe outperformed overall (the case was the same in the US, suggesting duration was back in style).
• At the margins, the afternoon rally was probably assisted by soft US existing home sales data, but perhaps moreso with an eye on Wednesday's release of flash August PMIs, which are expected to show a further deterioration in economic activity in the Eurozone and UK.
• The core FI rally was even more impressive considering today saw the busiest day of primary Euro issuance in over 6 weeks (E13.7bln per BBG calculations). Additionally, Finland and the EFSF announced syndications which could take place Wednesday.
• Periphery EGB spreads to Bunds closed tighter, again led by BTPs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.9bps at 3.087%, 5-Yr is down 5.1bps at 2.654%, 10-Yr is down 5.8bps at 2.645%, and 30-Yr is down 7.5bps at 2.725%.
• UK: The 2-Yr yield is down 9bps at 5.146%, 5-Yr is down 6.7bps at 4.683%, 10-Yr is down 8.4bps at 4.645%, and 30-Yr is down 9bps at 4.835%.
• Italian BTP spread down 3.4bps at 166bps / Spanish down 1.6bps at 103.2bps