EGBs-GILTS CASH CLOSE: German Inflation Seen Keeping Pressure On ECB

Thursday's Euro area inflation data had been highly anticipated as a potential market-mover - and it delivered, with Bunds underperforming after trading in a wide range.

• Bunds soared on a lower-than-expected Spanish CPI print in early trade, only to reverse all gains after German state-level CPI pointed to a higher-than-expected national print.
• The latter released in early afternoon topped expectations with core looking stubbornly high, triggering the next leg of the selloff.
• Gilts outperformed on the day, with modest weakness mostly in the belly of the UK curve, contrasting with yet more bear flattening in Germany.
• For a short time, there were no ECB cuts priced in 2023, with the peak coming in December. Overall peak pricing rose over 12bp on the day (an end-year ECB depo rate of around 3.61% is now seen).
• ECB's Kazaks told MNI that more rate increases will be needed in the baseline scenario. He speaks Friday morning, with colleagues Visco, Lagarde and Vujcic later in the day.
• Friday's week/month/quarter-end session also brings more upper-tier data: Dutch/French/Italian/Eurozone CPI and UK GDP are the highlights.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 9.5bps at 2.749%, 5-Yr is up 7.8bps at 2.406%, 10-Yr is up 4.5bps at 2.374%, and 30-Yr is up 1.3bps at 2.421%.
• UK: The 2-Yr yield is up 4.3bps at 3.455%, 5-Yr is up 5bps at 3.366%, 10-Yr is up 4.6bps at 3.518%, and 30-Yr is up 1.8bps at 3.849%.
• Italian BTP spread up 4bps at 186.1bps / Spanish up 1.6bps at 103.2bps