EGBs-GILTS CASH CLOSE: Curves Twist Steepen In Risk-Off Session

Short-end core EGBs and Gilts strengthened Wednesday, and periphery spreads widened for a 2nd consecutive session, amid a broader global risk-off move.

• The UK and German curves twist steepened on the day. An early rally at the long end following softer-than-expected Euro area PMI data eventually faded. Longer-end Gilts traded weakly throughout the morning (solid/mixed UK PMIs) with losses extending in the afternoon.
• In contrast, short-dated yields fell sharply as implied global central bank easing ticked up.
• This drove the UK 2s10s spread to the most positive since March 2023, and Germany's the least negative since Nov 2023.
• With equities pulling back amid an apparent unwind in the Japanese yen carry trade and soft earnings reports by major US corporates, periphery EGB spreads widened again, with high-beta BTPs and GGBs underperforming.
• German IFO is the highlight of Thursday morning's docket, in addition to other European confidence indicators and UK CBI Trends, and appearances by ECB's Nagel and Lagarde.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.9bps at 2.655%, 5-Yr is down 2.7bps at 2.37%, 10-Yr is up 0.5bps at 2.444%, and 30-Yr is up 2.7bps at 2.661%.
• UK: The 2-Yr yield is down 3.6bps at 3.989%, 5-Yr is up 0.2bps at 3.942%, 10-Yr is up 3.2bps at 4.156%, and 30-Yr is up 3.7bps at 4.673%.
• Italian BTP spread up 4.2bps at 135bps / Greek up 3.5bps at 103.4bps