EGBs-GILTS CASH CLOSE: Euro Inflation Seen Giving ECB Less "Way To Go"

Bunds led a broader European bond sell-off in early Friday trade after a stronger-than-expected French inflation print, but soft Italian/European price data mid-morning spurred a strong bounce across the space.

• This pushed back against Thursday's hawkish response to strong German core CPI readings, and for the first time this week, ECB and BoE peak rate pricing pulled back, though only slightly (under 1bp for each).
• Markets interpreted mid-afternoon comments by ECB centrist Villeroy as leaning dovish ("we may possibly still have a little way to go" on rates).
• BTPs outperformed, with the 10Y spread/Bunds compressing sharply after the soft Italian inflation numbers.
• The belly of the German curve outperformed on the day, with the UK's relatively mixed (amid largely directionless rangebound trade led by EGBs).
• A comparatively quiet week lies ahead, with the long Easter weekend starting Friday. French and German industrial production data feature (we get PMIs too but they are finals). BoE 's Tenreyro and Pill also make appearances.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 6.3bps at 2.686%, 5-Yr is down 9bps at 2.316%, 10-Yr is down 7.8bps at 2.296%, and 30-Yr is down 5.5bps at 2.366%.
• UK: The 2-Yr yield is down 0.9bps at 3.446%, 5-Yr is down 1bps at 3.356%, 10-Yr is down 2.7bps at 3.491%, and 30-Yr is down 0.8bps at 3.841%.
• Italian BTP spread down 5.7bps at 180.4bps / Spanish down 2bps at 101.2bps