EGBs-GILTS CASH CLOSE: Early Gains Fade

European bond yields closed mostly lower Tuesday, though well off session lows. Germany's curve bull flattened, with the UK's twist flattening, and periphery EGB spreads tightened modestly.

• Weaker-than-expected German inflation data initially drove EGB and Gilt yields lower, in the first full trading session of 2023 (Gilts were closed Monday).
• But bonds pared gains later in the session, with short-end and intermediate Gilt yields fully round-tripping.
• The afternoon session's weakness is not easily explained by any particular catalyst, though the UK move appeared to match a rebound in the GBP vs USD, with a bit of a lag.
• Though there was no sovereign bond supply today, Austria and Slovenia announced mandates, and there was a fairly busy EUR corporate issuance slate. Weds sees Germany sell E5bln of Schatz.
• French flash Dec inflation features early Wednesday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.9bps at 2.67%, 5-Yr is down 5.8bps at 2.418%, 10-Yr is down 5.5bps at 2.389%, and 30-Yr is down 8.7bps at 2.313%.
• UK: The 2-Yr yield is up 2bps at 3.595%, 5-Yr is unchanged at 3.618%, 10-Yr is down 2.1bps at 3.651%, and 30-Yr is down 0.2bps at 3.954%.
• Italian BTP spread down 0.7bps at 211.3bps / Spanish down 0.4bps at 106.6bps