EGBs-GILTS CASH CLOSE: Front-End UK Yields Collapse On Weak CPI

Front-end UK yields collapsed Wednesday after a soft inflation print opened the door to earlier and deeper BoE cuts, with core/semi-core EGBs also strengthening.

• With UK November core inflation coming in 0.5pp lower than expected (5.1% Y/Y) and the key Services category missing by 0.3pp(6.3%), 2Y UK yields fell upwards of 19bp at the early low, before ticking a little higher over the session. The UK curve bull steepened on the day.
• With little else in the way of impactful data or newsflow, the Gilt move set the tone for the global core FI rally to continue, with German yields down 4-5bp across the curve.
• EGB periphery instruments were mixed, with GGBs outperforming.
• ECB's Knot said 1H 2024 rate cuts were "rather unlikely"; both he, and a presentation by ECB's Lane, noted the importance of wages to the inflationary outlook.
• There are no further scheduled ECB/BoE speakers this year, but UK data remaining includes public sector finances (Thursday), and retail sales/Q3 GDP (Friday).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 4bps at 2.473%, 5-Yr is down 4.6bps at 1.954%, 10-Yr is down 4.5bps at 1.971%, and 30-Yr is down 5.3bps at 2.152%.
• UK: The 2-Yr yield is down 17.8bps at 4.115%, 5-Yr is down 16.7bps at 3.509%, 10-Yr is down 12.4bps at 3.528%, and 30-Yr is down 8.3bps at 4.069%.
• Italian BTP spread up 0.7bps at 162.2bps / Greek down 2.9bps at 110.2bps