BONDS: EGBs-GILTS CASH CLOSE: Bunds Outperform With ECB Looming

Gilts underperformed global peers Tuesday.

• Movements in Gilts largely paralleled US Treasuries: initially UK yields appeared to lead Treasury yields higher in morning trade, before the space recovered through early afternoon.
• But a spike in the US dollar saw UK and US yields rise in tandem toward the cash close. That was particularly noticeable at the short end, with US (and alongside, UK)  yields pressured higher ahead of supply and in anticipation of Wednesday's CPI data.
• Bunds traded in their own fashion, with yields receding through most of the session. With little on the European data/speaker calendar Tuesday, attention remains on Thursday's ECB decision.
• The German curve twist steepened on the day, with the UK's bear steepening.
• Periphery spreads widened modestly; French OAT spreads to Bunds bucked the wider trend, with slight tightening.
• MNI's preview of the ECB decision was published today (link): the ECB will cut by 25bp (fully priced by markets with just 5% implied of a 50bp cut), and even if language concerning the ‘restrictive’ policy stance is not removed from the policy statement this time around, it soon will be.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.4bps at 1.964%, 5-Yr is down 2.2bps at 1.956%, 10-Yr is up 0.1bps at 2.122%, and 30-Yr is up 0.6bps at 2.354%.
• UK: The 2-Yr yield is up 3bps at 4.277%, 5-Yr is up 4bps at 4.159%, 10-Yr is up 5.3bps at 4.323%, and 30-Yr is up 5.4bps at 4.878%.
• Italian BTP spread up 0.9bps at 108.6bps / French OAT down 0.6bps at 74.8bps