EGBs-GILTS CASH CLOSE: Gilts Outperform Ahead Of UK CPI

European yields fell Tuesday, with Bunds partially unwinding Monday's weakness, and Gilts outperforming ahead of CPI data and the Bank of England decision.

• Modest weakness in early trade stemmed in part from a hawkish hold by the RBA overnight, but yields ultimately resolved lower, helped by a weaker-than-expected US retail sales report released in the European afternoon.
• Gilts easily outperformed Bunds on the day. The UK curve bull steepened through the 10Y segment, with 5Y outperforming after a solid auction today. Germany's curve bull flattened modestly.
• French 10Y spreads to Germany tightened for a 2nd day (-1.7bp) after last week's blow out. BTPs and GGBs outperformed in the EGB space once again, as periphery spreads narrowed for a 2nd consecutive session.
• While the BoE decision awaits Thursday, the main item on Wednesday's schedule is the UK inflation report - MNI's preview is here. MNI's Markets Team sees two-way risks to the services CPI print (median est 5.5% Y/Y), but with downside risks outweighing upside risks.
• Also of note, EU finance ministers are scheduled to meet Wednesday, with focus on the Excessive Deficit Procedure (and potential for France's inclusion therein).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.1bps at 2.803%, 5-Yr is down 0.9bps at 2.415%, 10-Yr is down 1.8bps at 2.396%, and 30-Yr is down 2.3bps at 2.548%.
• UK: The 2-Yr yield is down 6.8bps at 4.145%, 5-Yr is down 7.7bps at 3.917%, 10-Yr is down 6.7bps at 4.048%, and 30-Yr is down 7.4bps at 4.526%.
• Italian BTP spread down 3.4bps at 149.5bps / Greek down 3.6bps at 121.2bps