EGBs-GILTS CASH CLOSE: German Curve Fades Early Flattening

European yields settled mostly lower Friday, with rates coming off morning highs in the afternoon. The German curve traded mixed, while the UK's twist flattened.

• Segments of the German curve flattened to multi-year lows (5s30s were set for the lowest close since at least the early 1990s) on a combination of rising ECB hike bets and longer-term economic pessimism, but the move partially reversed in the afternoon as Bobl yields pulled back.
• The UK short end underperformed despite next week's BoE hike pricing falling to just 53bp, down 12bp on the session, following weak retail sales data. Pricing out to mid-2023 held up, however, keeping short end yields underpinned.
• Periphery spreads traded mostly flat on the session, narrowing from morning wides.
• Some trading desks observed position squaring after a volatile week as a factor in the afternoon rally as well, with the UK and Japan observing holidays on Monday.

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

• Germany: The 2-Yr yield is down 0.7bps at 1.533%, 5-Yr is down 1.3bps at 1.644%, 10-Yr is down 1.4bps at 1.756%, and 30-Yr is up 0.5bps at 1.765%.
• UK: The 2-Yr yield is up 1.5bps at 3.14%, 5-Yr is up 0.5bps at 3.125%, 10-Yr is down 2.8bps at 3.137%, and 30-Yr is down 2.6bps at 3.45%.
• Italian BTP spread down 0.8bps at 227.6bps / Spanish unchanged at 115.6bps