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EGBs-GILTS CASH CLOSE: ECB Delivers Big Hike, But Reaction Mixed

BONDS

The German curve twist flattened Thursday, with BTP spreads widening sharply and Gilts bull flattening, as the ECB delivered a bigger-than-expected 50bp hike.

  • Schatz yields spiked 15bp on the ECB decision but that move almost completely faded as forward guidance was dropped and Lagarde was noncommittal on a September hike.
  • BTP spreads widened sharply in a dramatic day including the resignation of PM Draghi in the morning and the ECB's announcement of the Transmission Protection Instrument (TPI).
  • Ambiguous details on TPI contributed to BTP weakness. Compounding issues for BTPs, as cash markets closed, media outlets reported the next Italian election would be held on September 25 - our Politics Team has published a briefing on what to expect next.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

  • Germany: The 2-Yr yield is up 6.9bps at 0.676%, 5-Yr is up 1.3bps at 1.024%, 10-Yr is down 3.4bps at 1.223%, and 30-Yr is down 5.1bps at 1.403%.
  • UK: The 2-Yr yield is down 6.8bps at 2.001%, 5-Yr is down 6.8bps at 1.848%, 10-Yr is down 9.2bps at 2.047%, and 30-Yr is down 12.9bps at 2.531%.
  • Italian BTP spread up 18.8bps at 232.2bps / Greek up 13bps at 233.7bps
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