EGBs-GILTS CASH CLOSE: Dovish Schnabel Reloads The Rally

The German and UK curves bull flattened sharply Tuesday as the overall fixed income rally continued.

• The main catalyst for lower yields was an interview published overnight with ECB's Schnabel who showed surprising confidence on the inflation front ("the recent inflation print has given me more confidence that we will be able to come back to 2% no later than 2025"), translating to making further hikes "rather unlikely" - and when specifically asked about a rate-cut before mid-2024, she did not rule it out.
• The bond rally extended in the afternoon as US job openings data came in much softer than expected. Softer oil prices also helped.
• Gilts outperformed Bunds, with UK yields down double digits across the curve.
• Periphery EGBs saw spreads tighten, shrugging off Schnabel's comments that echoed Pres Lagarde's on PEPP reinvestments being re-assessed sooner rather than later.
• Attention early Wednesday will be on German factory orders for October.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 8.5bps at 2.61%, 5-Yr is down 8.5bps at 2.19%, 10-Yr is down 10.7bps at 2.247%, and 30-Yr is down 14.2bps at 2.448%.
• UK: The 2-Yr yield is down 10.4bps at 4.514%, 5-Yr is down 13bps at 4.056%, 10-Yr is down 16.9bps at 4.025%, and 30-Yr is down 15.7bps at 4.567%.
• Italian BTP spread down 3.1bps at 174.1bps / Greek down 4.2bps at 115.8bps