EGBs-GILTS CASH CLOSE: Flatter On Geopolitical Concerns

The German and UK curves flattened Wednesday, with Gilts outperforming.

• Most gains were posted in the morning, with a safe-haven bid centred around geopolitical concerns (rockets fired between Israel and Lebanon), helped by more dovish-leaning Federal Reserve participant commentary (Gov Bowman).
• Gains stalled in early afternoon, as US producer prices came in higher than expected ahead of Thursday's US CPI report; the rally resumed later in the day as oil prices dropped sharply on reports casting doubt on Iran's role in the Hamas attacks on Israel. Notably European gas prices also dropped sharply on the day.
• Yields closed near the lows, with the short end relatively stubborn: the German curve twist flattened with Schatz yields higher; 2Y UK yields were relatively flat in a bull flattening move.
• Periphery spreads mostly tightened, appearing to track oil prices in the latter half of the session, after having benefited earlier from higher equities.
• UK GDP represents the European data highlight first thing Thursday; we get several central bank speakers as well including BOE's Pill, with the ECB's September meeting accounts published - all before the US inflation report in the afternoon.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.8bps at 3.108%, 5-Yr is down 0.6bps at 2.659%, 10-Yr is down 5.7bps at 2.718%, and 30-Yr is down 10.8bps at 2.899%.
• UK: The 2-Yr yield is down 0.2bps at 4.797%, 5-Yr is down 3.8bps at 4.388%, 10-Yr is down 9.8bps at 4.328%, and 30-Yr is down 15.1bps at 4.768%.
• Italian BTP spread up 0.1bps at 195.1bps / Spanish down 0.6bps at 109.9bps