EGBs-GILTS CASH CLOSE: Bunds Outperform Gilts As Euro PMIs Disappoint

Core EGBs and Gilts rallied Friday, after surprisingly poor European PMIs cast doubt on whether economic growth momentum could be sustained.

• French and German Services and Manufacturing PMIs unexpectedly decelerated in the June flash readings, which saw Bund yields test the week's lowest levels.
• UK PMIs were more mixed, with Manufacturing slightly stronger than expected but Services disappointing. Earlier, UK retail sales data were solid, but were seen to have only limited implications for BoE policy.
• Yields rebounded in afternoon trade as US PMI data was unexpectedly strong, including the best Services reading in 2 years, though inflation softness noted in the report helped take the hawkish edge off.
• Bunds outperformed Gilts, with the German curve twist steepening with a short-end rally, and the UK's bear steepening. EGB periphery spreads widened modestly.
• Apart from German IFO Monday, scheduled events and data are relatively light early next week (multiple ECB speakers including Schnabel and Villeroy), but pick up later including France/Spain/Italy June inflation data on Friday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.9bps at 2.789%, 5-Yr is down 3.2bps at 2.415%, 10-Yr is down 1.9bps at 2.412%, and 30-Yr is up 0.6bps at 2.6%.
• UK: The 2-Yr yield is up 1.4bps at 4.17%, 5-Yr is up 2.8bps at 3.932%, 10-Yr is up 2.6bps at 4.083%, and 30-Yr is up 2.4bps at 4.589%.
• Italian BTP spread up 1.2bps at 152.9bps / Spanish up 0.9bps at 87.5bps