EGBs-GILTS CASH CLOSE: ECB Hike Expectations Fade Late

European curves flattened Wednesday despite a late rally at the short end as ECB rate hike price expectations cooled and equities retreated to session lows.

• After implied rates rose earlier in the session on comments by ECB's Rehn calling for an end to negative rates "relatively quickly", they fell to session lows in late afternoon trade after MNI published a Policy piece which in part cited ECB sources downplaying ECB Knot's call for a possible 50bp hike.
• The German curve pared earlier flattening as short-end yields dipped. The repricing erased most of Gilts' earlier outperformance, following a high but in-line CPI print this morning.

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

• Germany: The 2-Yr yield is up 1.5bps at 0.392%, 5-Yr is up 0.1bps at 0.735%, 10-Yr is down 1.7bps at 1.029%, and 30-Yr is down 2.9bps at 1.147%.
• UK: The 2-Yr yield is up 1.6bps at 1.461%, 5-Yr is up 1.5bps at 1.58%, 10-Yr is down 2bps at 1.861%, and 30-Yr is down 0.3bps at 2.089%.
• Italian BTP spread up 1.3bps at 192.9bps / Spanish unch at 107.2bps