EGBs-GILTS CASH CLOSE: German Bull Steepening On A Dovish Knot

Dovish comments from the ECB's Klaas Knot triggered a global bond rally Tuesday, ahead of next week's Governing Council decision and tomorrow's key UK CPI reading.

• Uncharacteristically dovish comments by Knot pared expectations for a hike beyond July's near-certain 25bp ("for July I think it is a necessity, for anything beyond July it would at most be a possibility but by no means a certainty").
• ECB pricing pulled back 5bp, driving bull steepening in the German curve (Schatz rallied the most since early May, with yields down 13bp).
• Periphery spreads tightened, with BTPs outperforming and 10Y hitting the tightest levels to Bund since late June.
• Gilts lagged the EGB rally, but still strengthened in a bull flattening move as BoE terminal pricing pulled back 9bp to the lowest since Jun 21.
• That price action suggested little apparent concern over yet another hawkish surprise in the UK inflation print Wednesday (0700BST) which is easily the data highlight of the week - our preview is here.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 13.1bps at 3.058%, 5-Yr is down 9.6bps at 2.483%, 10-Yr is down 9.1bps at 2.389%, and 30-Yr is down 8.1bps at 2.425%.
• UK: The 2-Yr yield is down 7.7bps at 5.091%, 5-Yr is down 8.6bps at 4.47%, 10-Yr is down 10bps at 4.331%, and 30-Yr is down 7.9bps at 4.477%.
• Italian BTP spread down 4.9bps at 162.5bps / Spanish down 2.9bps at 100.2bps