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EGBs-GILTS CASH CLOSE: From Bear Flattening To Bull Flattening

BONDS

European bonds rallied after an early selloff, with Bunds and Gilts ending Monday's session stronger.

  • Yields jumped on the open as oil prices shot higher on an unexpected OPEC+ output cut announcement made over the weekend. The German and UK curves bear flattened.
  • But the move reversed later in the session, with curves ultimately bull flattening. A very weak US ISM manufacturing reading was a key driver in the European afternoon, with yields hitting session lows.
  • ECB hawk Holzmann said a 50bp hike in May was "still on the cards", with the OPEC+ decision adding to inflation on the margin. That bumped up ECB May hike pricing slightly, but didn't have much of an impact further down the strip, and reversed alongside the broader rate move.
  • ECB and BoE terminal pricing finished basically flat on the day, after early 5-6bp rises.
  • Periphery EGB spreads widened, with the exception of Portugal (possibly follow-through from Friday's funding announcement).
  • Comments by BoE's Pill are the highlight of Tuesday's docket.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

  • Germany: The 2-Yr yield is down 0.9bps at 2.674%, 5-Yr is down 2.3bps at 2.287%, 10-Yr is down 3.7bps at 2.255%, and 30-Yr is down 5.7bps at 2.306%.
  • UK: The 2-Yr yield is down 5.4bps at 3.39%, 5-Yr is down 5.7bps at 3.3%, 10-Yr is down 6bps at 3.43%, and 30-Yr is down 8.1bps at 3.758%.
  • Italian BTP spread up 4.1bps at 184.6bps / Portuguese down 0.9bps at 82.3bps
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