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EGBs-GILTS CASH CLOSE: Eyeing Next Week's Hawkish Risks

BONDS

The key theme of the week - curve flattening, and in particular German inversion - abated in the closing session of the week, with the long end selling off.

  • The broader impetus for the sell-off is thinner liquidity meeting profit-taking, particularly ahead of an extremely busy week that includes Eurozone inflation data and commentary by US Fed Chair Powell.
  • That's a schedule rife with potential hawkish risks (Powell pushback on pivot speculation, high eurozone inflation print), the recent dovish rally.
  • Today markets appeared to eye ECB Muller's warning against a premature end to tightening: terminal ECB rates picked up 4-5bp.
  • This repricing led to BTPs underperformance, with 10Y yields rising more than 20bp (the biggest in nearly 2 months) and spreads reversing Thursday's tightening.
  • BoE terminal pricing picked up a few basis points as well, with the short end underperforming.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 8.4bps at 2.197%, 5-Yr is up 11.3bps at 2.009%, 10-Yr is up 12.3bps at 1.973%, and 30-Yr is up 8.6bps at 1.879%.
  • UK: The 2-Yr yield is up 8.3bps at 3.292%, 5-Yr is up 6.8bps at 3.288%, 10-Yr is up 8.3bps at 3.121%, and 30-Yr is up 5.9bps at 3.334%.
  • Italian BTP spread up 5.6bps at 188bps / Spanish up 3.2bps at 98bps
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