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EGBs-GILTS CASH CLOSE: Dovish BoE Contrasts With Very Hawkish ECB

BONDS

A hugely busy session Thursday centred on central bank decisions saw EGB yields soar and Gilt yields decline, with periphery spreads widening sharply.

  • The BoE hiked by 50bp as expected, but the dovish-leaning 3-way vote split and suggestion that UK inflation had peaked pulled UK yields lower.
  • In contrast, the ECB meeting was very hawkish: while the expected 50bp hike was duly delivered, the statement revealed concrete details on QT to start next March, and noted rates "will still have to rise significantly at a steady pace".
  • The resultant EGB selloff extended after Lagarde said this could mean 50bp hikes at each of the next 2-3 meetings.
  • BTPs saw their biggest sell-off since March 2020, with 10Y yields up 30bp and spreads to Bunds 16bp wider.
  • The schedule picks up first thing Friday with UK retail sales and Europe PMIs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 25.4bps at 2.387%, 5-Yr is up 22.7bps at 2.16%, 10-Yr is up 14.3bps at 2.083%, and 30-Yr is up 4.6bps at 1.89%.
  • UK: The 2-Yr yield is down 5.5bps at 3.396%, 5-Yr is down 6.6bps at 3.231%, 10-Yr is down 7.1bps at 3.244%, and 30-Yr is down 4.7bps at 3.649%.
  • Italian BTP spread up 15.7bps at 208.3bps /Spanish up 4.6bps at 107.8bps
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