EGBs-GILTS CASH CLOSE: Fading Recent Gains Despite Soft EZ Inflation

Core European FI lost some ground Thursday despite continued downside surprises in Eurozone inflation data, with Gilts underperforming.

• The Netherlands and then France continued the trend of below-expected Euro November flash inflation readings (after Germany and Spain Wednesday), with the Eurozone-wide figure coming below every analyst expectation on both headline and core coming into the week.
• By late morning though, this week's impressive rally appeared to lose steam, and both Bunds and Gilts faded over the rest of the session, cheapening alongside Treasuries as some Fed speakers appeared to push back against rate cuts, and US data was too mixed to generate another leg to the bond rally (including a very strong MNI Chicago PMI).
• The drop in Gilts was particularly pronounced, despite apparent UK-specific drivers.
• Periphery spreads widened despite the increasingly dovish outlook for ECB rates.
• Final PMIs are the early highlight Friday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2bps at 2.816%, 5-Yr is up 0.8bps at 2.374%, 10-Yr is up 1.5bps at 2.447%, and 30-Yr is up 0.6bps at 2.687%.
• UK: The 2-Yr yield is up 4bps at 4.608%, 5-Yr is up 7.5bps at 4.175%, 10-Yr is up 8bps at 4.176%, and 30-Yr is up 9.3bps at 4.691%.
• Italian BTP spread up 4.2bps at 178.4bps / Spanish up 2.3bps at 102.5bps