EGBs-GILTS CASH CLOSE: Bunds Underperform As ECB Hikes Re-Priced

Bund yields on Friday rose the most of any session this month, continuing their underperformance of Gilts as European curves bear steepened.

• Weakness across the German curve came as ECB's Lagarde pledged to "stay the course of resilience" on monetary policy, with 2023 hike pricing completing a full reversal of the dovish move earlier this week (143bp, where they entered the week, vs a low of 126bp on Tues).
• UK long-end yields rose sharply too, though short end weakness was relatively more contained, with very weak Dec retail sales data out early this morning.
• With ECB tightening expectations ratcheting higher, BTPs underperformed overall with spreads vs Bunds widening more than 10bp, closing the week above 180bp having tested the 170bp handle.
• Attention early next week will be on flash Jan PMIs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4.9bps at 2.577%, 5-Yr is up 8.6bps at 2.21%, 10-Yr is up 11.2bps at 2.177%, and 30-Yr is up 14.3bps at 2.141%.
• UK: The 2-Yr yield is up 3.6bps at 3.49%, 5-Yr is up 5.9bps at 3.296%, 10-Yr is up 10.3bps at 3.378%, and 30-Yr is up 10.9bps at 3.721%.
• Italian BTP spread up 10.6bps at 181.6bps / Spanish up 3.1bps at 95.8bps