EGBs-GILTS CASH CLOSE: Gilts Outperform After Initial BoE Selloff

European core yields finished mostly lower and well off session highs Thursday, with Gilts closing as an outperformer on BoE decision day.

• Yields opened higher after the Fed's Powell came out on the hawkish side overnight, with European morning headlines centered around data: Eurozone flash inflation came in above the consensus coming into the week on both headline and core, but was largely in line with the national prints so had limited impact.
• The BoE skewed more hawkish than most market participants had expected though was broadly in line with MNI's view, with a vote split including 2 members favouring a hike (vs consensus for a unanimous vote to hold), and the tightening bias being ended (though this was expected).
• Gilt yields hit session highs after the decision but slightly dovish wording surrounding inflation projections helped limit weakness.
• Yields had already started leaning lower as the BoE wrapped up, but the fall gathered steam amid yet another set of dovish US labour market data and accelerated an hour before the European cash close as US bank stocks fell sharply for a 2nd day, triggering a safe haven rally.
• The German curve twist flattened, with the UK's bull flattening. Periphery spreads widened again on the risk-off move (as did swap spreads), led by Greece.
• Capping a busy week will be the US nonfarm payrolls report Friday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.9bps at 2.457%, 5-Yr is up 0.2bps at 2.053%, 10-Yr is down 1.7bps at 2.149%, and 30-Yr is down 3.4bps at 2.371%.
• UK: The 2-Yr yield is down 2.4bps at 4.234%, 5-Yr is down 4.7bps at 3.698%, 10-Yr is down 4.8bps at 3.746%, and 30-Yr is down 4.2bps at 4.414%.
• Italian BTP spread up 1.4bps at 157.6bps / Greek up 3.3bps at 108.2bps