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EGBs-GILTS CASH CLOSE: Dovish ECB/BoE Repricing Spurs Bull Steepening

BONDS

Core FI reversed early losses to close Monday stronger, with Gilts outperforming Bunds.

  • In a quiet day for European data, central banker commentary continued to be the driving force in rates.
  • UK short-end yields fell further as last week's dovish BoE speak continued to be priced. Implied 2024 BoE cuts increased by 7bp to 59bp, the most since April 10.
  • While he is a noted dove, ECB's Centeno's comment Monday that easing this year could exceed 100bp helped implied 2024 ECB rate cuts rise 4bp on the day to 78bp.
  • Against this backdrop, both the German and UK curves bull steepened.
  • Periphery EGBs benefited from benign ratings announcements Friday as well as the softer central bank rate outlook, with BTP spreads compressing the most in 2 months despite an otherwise mixed backdrop.
  • Tuesday's scheduled highlight is the April round of flash PMIs, while we also get UK public finance data - which is likely to lead to an upward revision to the FY24/25 gilt remit (as we note in our Gilt Week Ahead).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 3.5bps at 2.965%, 5-Yr is down 2.9bps at 2.495%, 10-Yr is down 1.4bps at 2.486%, and 30-Yr is up 0.4bps at 2.627%.
  • UK: The 2-Yr yield is down 6.3bps at 4.32%, 5-Yr is down 4.8bps at 4.08%, 10-Yr is down 2.5bps at 4.205%, and 30-Yr is down 1.8bps at 4.682%.
  • Italian BTP spread down 7.1bps at 136.1bps / Spanish bond spread down 3.7bps at 77.5bps
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