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

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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

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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

Keep reading...Show less