EGBs-GILTS CASH CLOSE: Contrasting PMIs See Bunds Outperform Gilts

Bunds outperformed Gilts Wednesday as Eurozone flash PMIs disappointed, while their UK counterpart showed unexpected strength.

• In data that can best be described as "stagflationary", services PMIs came in low for both Germany and France (and consequently the Eurozone), but the survey internals showed continued price pressures and manufacturing concerns over Red Sea shipping developments.
• In contrast, UK services (and manufacturing) PMIs were above-expected, though similarly, higher cost pressures were noted.
• Later in the session, US PMI data came in strong, weighing on Bunds and Gilts into the cash close.
• The higher inflation pressures evident in the PMIs helped limit the upside to core EGBs from the weak activity implied, and the German curve bull flattened on the day, with the UK's bear flattening.
• Periphery spreads finished flat/tighter, mirroring a rally in equities.
• Thursday's highlight is the ECB decision - MNI's preview is here. The overall message will be that the ECB is getting closer to easing policy, but it is not there yet.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.5bps at 2.709%, 5-Yr is down 1bps at 2.257%, 10-Yr is down 1bps at 2.342%, and 30-Yr is down 1.6bps at 2.522%.
• UK: The 2-Yr yield is up 4.4bps at 4.419%, 5-Yr is up 2.8bps at 3.958%, 10-Yr is up 2.4bps at 4.01%, and 30-Yr is up 2.4bps at 4.607%.
• Italian BTP spread down 0.7bps at 155.9bps / Spanish unchanged at 91.8bps