EGBs-GILTS CASH CLOSE: Fed-Led Gains Pared As BoE/ECB Stand Their Ground

Bunds and Gilts closed slightly higher Thursday, following an intraday reversal of the large gains after last night's unexpectedly dovish Federal Reserve meeting.

• Following through from the drop on the open into early European trade, 10Y Gilt yields fell as much as 17bp at one point, with Bund yields down nearly 15bp, before erasing most of the move as the BoE and ECB decisions were digested. The German curve bull steepened with the UK's bull flattening.
• The BoE decision was largely in line, with a 6-3 vote breakdown and the statement seen leaning more hawkish than dovish versus expectations.
• Apart from announcing that PEPP reinvestments would begin to be tapered off in H2 2024, there were no major surprises from the ECB. However the Lagarde press conference delivered a few hawkish-leaning soundbites (they didn't discuss cuts "at all", "should not lower our guard" against inflation) that were sufficient to pull Bunds to session lows. Solid US data (retail sales, jobless claims) helped keep pressure on core FI through the afternoon.
• Periphery EGB spreads tightened as PEPP runoff won't be as onerous as some analysts had expected.
• Friday sees flash December PMIs as well as appearances by multiple ECB (Holzmann, Centeno, Vasle, Kazimir, Muller, Scicluna, Simkus, Vujcic) speakers, and BOE's Ramsden.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 10bps at 2.567%, 5-Yr is down 8.8bps at 2.079%, 10-Yr is down 5.4bps at 2.119%, and 30-Yr is down 1.9bps at 2.327%.
• UK: The 2-Yr yield is down 1.9bps at 4.362%, 5-Yr is down 6.9bps at 3.817%, 10-Yr is down 4.1bps at 3.789%, and 30-Yr is down 3.9bps at 4.294%.
• Italian BTP spread down 8.3bps at 167.3bps / Greek down 8.2bps at 116.8bps