EGBs-GILTS CASH CLOSE: German Short End Underperforms Again Pre-ECB

UK yields dropped sharply Wednesday, with EGB yields rising ahead of Thursday's ECB decision. The German short end was a notable underperformer for the 2nd consecutive session.

• The UK curve leaned bull flatter on the day with outperformance in the central bank rate-sensitive 5Y segment (peak BoE hike pricing dipped to a fresh 3-month low).
• This followed a soft UK GDP print, with the US CPI data largely in line with expectations adding fresh downward impetus to global yields through the afternoon.
• The German curve twist flattened as ECB hike pricing firmed further.
• A 25bp raise Thursday briefly hit 75% implied probability after a hawkish Reuters sources piece out after market close Wednesday.
• Periphery EGB spreads widened, led by BTPs, evident of some caution ahead of tomorrow's ECB decision.
• With an otherwise quiet schedule Thursday, all attention will be on the ECB decision and the Lagarde press conference. Our meeting preview is here.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4.3bps at 3.17%, 5-Yr is up 2.8bps at 2.682%, 10-Yr is up 0.8bps at 2.651%, and 30-Yr is down 1.4bps at 2.753%.
• UK: The 2-Yr yield is down 5.6bps at 4.985%, 5-Yr is down 7.9bps at 4.565%, 10-Yr is down 6.9bps at 4.347%, and 30-Yr is down 6.7bps at 4.664%.
• Italian BTP spread up 3.7bps at 179.6bps / Spanish up 1.6bps at 107.1bps