EGBs-GILTS CASH CLOSE: Bunds Outperform As Bank Woes Resurface

Bunds outperformed Gilts amid a strong risk-off core FI rally Tuesday, with banking sector concerns returning to market consciousness.

• Cyclical stocks led equities lower, with financials the biggest drag on European indices following poor results by beleaguered US bank First Republic. The German curve bull steepened while the UK's bull flattened.
• Weak Spanish PPI set a bullish tone for bonds, but Bunds' outperformance was helped by a sharp 10bp pullback in ECB peak rate expectations, partly explained as a retracement of a bearish move on hawkish commentary by ECB's Schnabel late in Monday's session.
• BoE pricing retraced slightly less (-5bp), though a dovish move on comments by Chief Econ Pill seemed unwarranted as they were stale (recorded Apr 18, prior to CPI data).
• Despite equity weakness, EGBs held in fairly well, with spreads widening only modestly (Greece worst off, with 10Y GGBs 4.5bp wider to Bunds).
• Wednesday hosts another 2nd tier data slate, but we get the Swedish Riksbank decision (MNI preview here) as well as multiple ECB speakers including Vujcic, Guindos and Herodotou.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 13.2bps at 2.845%, 5-Yr is down 14.5bps at 2.415%, 10-Yr is down 12.4bps at 2.384%, and 30-Yr is down 10.8bps at 2.451%.
• UK: The 2-Yr yield is down 7.1bps at 3.733%, 5-Yr is down 9.3bps at 3.561%, 10-Yr is down 8.6bps at 3.695%, and 30-Yr is down 7.7bps at 4.043%.
• Italian BTP spread up 2bps at 189.2bps / Greek up 4.5bps at 183.4bps