EGBs-GILTS CASH CLOSE: Bunds Underperform Amid Heavy Supply

Gilts outperformed Bunds Tuesday, as heavy supply took centre stage.

• Supply weighed for most of the morning. Tuesday marked the largest-ever day for European primary market debt issuance (BBG pointed out at least E47bln including corporate paper), including syndications from Italy and Belgium.
• Following syndication pricings, and amid a pullback in oil prices, core EGBs regained ground in mid-afternoon briefly amid some futures block buying but eventually faded toward the cash close.
• The German curve bear flattened on the day, with the UK's twist steepening slightly (20Y Gilt supply was well-received). After a weak start, periphery spreads narrowed by a couple of basis points.
• An uneventful session for data: weak German industrial production data had been telegraphed by Monday's poor factory orders report, while below-expected Eurozone and Italian unemployment rates had little impact.
• ECB's Villeroy speaks after the close, with Wednesday bringing central banker appearances including ECB's Schnabel and Guindos, and BOE's Bailey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 6.2bps at 2.61%, 5-Yr is up 6.1bps at 2.136%, 10-Yr is up 5.2bps at 2.188%, and 30-Yr is up 5bps at 2.416%.
• UK: The 2-Yr yield is down 0.4bps at 4.211%, 5-Yr is down 0.3bps at 3.727%, 10-Yr is up 1bps at 3.782%, and 30-Yr is up 0.5bps at 4.391%.
• Italian BTP spread down 2.1bps at 166.2bps / Greek down 2.6bps at 113.1bps