EGBs-GILTS CASH CLOSE: Flattening As Powell Spurs Short-End Rout

The UK and German curves flattened Tuesday, with EGB periphery spreads widening modestly.

• The session began with a strong beat for German factory orders, but more impactful was a drop in inflation expectations in the ECB's Consumer Expectations survey - which saw Bunds extend to intraday highs.
• Bunds and Gilts declined thereafter, with the selloff accelerating in mid-afternoon on hawkish comments from Fed Chair Powell.
• The long end would bounce from session lows but the short end fared worse, with ECB terminal rate expectations rising to a new cycle high of 4.16%. That underperformance meant sharp flattening in the German and UK curves.
• Gilt reaction was limited to BoE hawk Mann who said little new in comments today; ECB dove Herodotou likewise did not move the needle in calling the inflation fight "far from over".
• Wednesday sees German industrial/retail sales and final Eurozone GDP data, Bund and PGB supply, and appearances by BOE's Dhingra and ECB's Lagarde and Panetta.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.4bps at 3.311%, 5-Yr is down 5.2bps at 2.846%, 10-Yr is down 5.7bps at 2.692%, and 30-Yr is down 5.6bps at 2.607%.
• UK: The 2-Yr yield is up 2.4bps at 3.8%, 5-Yr is down 0.3bps at 3.7%, 10-Yr is down 4.4bps at 3.822%, and 30-Yr is down 6.3bps at 4.151%.
• Italian BTP spread up 0.9bps at 183.5bps / Greek up 5.8bps at 180.8bps