EGBs-GILTS CASH CLOSE: Bunds Weaken With ECB Cut Path Left Unclear

EGB curves bear flattened Thursday, as the ECB delivered a slightly hawkishly-perceived message alongside its well-anticipated 25bp rate cut.

• An upgrade in core inflation projections drove an initial sell-off in Euro rates, after which Pres Lagarde warned of a "bumpy" inflation path ahead and wouldn't fully endorse that the ECB had entered a "dialing back" phase of rate decisions, stressing data dependence.
• Bunds would bounce from mid-press conference lows, but the German curve saw belly underperformance as 2024 ECB cuts (beyond today's expected 25bp reduction) were pared to 36bp from 40bp pre-decision.
• Periphery EGBs largely took the relatively hawkish communications in stride, with spreads closing only slightly wider of Bunds.
• Gilts easily outperformed EGBs, with bull steepening in the UK curve.
• Friday brings German industrial production and Eurozone final Q1 GDP data, after which the session's focus will be US nonfarm payrolls.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.7bps at 3.017%, 5-Yr is up 4.4bps at 2.604%, 10-Yr is up 3.7bps at 2.549%, and 30-Yr is up 2.2bps at 2.674%.
• UK: The 2-Yr yield is down 4bps at 4.331%, 5-Yr is down 2.8bps at 4.067%, 10-Yr is down 1bps at 4.174%, and 30-Yr is unchanged at 4.611%.
• Italian BTP spread up 1.2bps at 132.1bps / Spanish up 0.2bps at 73.2bps