EGBs-GILTS CASH CLOSE: German Short End Underperforms With ECB Hike Eyed

Gilts easily outperformed core EGBs Tuesday, with a combination of soft-leaning UK data and rising ECB hike probability.

• The session began with UK labour market data that - judging from price action over the course of the morning - was taken as showing signs of loosening despite wages remaining at elevated levels. BoE appointee Breeden made comments today consistent with the centre of the MPC and didn't move markets.
• Ahead of the ECB decision Thursday, implied 25bp hike pricing probability rose above 50% for the first time this month, leading the German short-end weaker.
• While there was no specific catalyst for the move, it illustrated continued uncertainty over the meeting outcome. MNI's preview (looking for a hawkish hold) went out today.
• The German curve twist flattened on the day, with the UK's leaning bull flatter.
• Periphery EGB spreads traded mixed. Greek instruments underperformed.
• Attention first thing Wednesday will be on UK GDP data; later in the session US CPI will be the key event.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.1bps at 3.127%, 5-Yr is up 2bps at 2.654%, 10-Yr is up 0.5bps at 2.643%, and 30-Yr is down 0.4bps at 2.767%.
• UK: The 2-Yr yield is down 4.8bps at 5.041%, 5-Yr is down 5.7bps at 4.644%, 10-Yr is down 5.6bps at 4.416%, and 30-Yr is down 4.5bps at 4.731%.
• Italian BTP spread unchanged at 175.9bps / Greek up 4.2bps at 140.4bps