EGBs-GILTS CASH CLOSE: Gilts Outperform Amid Weak PMIs

Gilts easily outperformed Bunds Friday, with core FI recovering some ground after Thursday's sell-off.

• The European session opened on the front foot following a "dovish hold" by the BoJ overnight. Weak French September flash PMI data accelerated the rally, but a stronger-than-expected German composite reading reversed gains. UK data was poor but was seen largely priced in with the BoE having seen the data before deciding to pause at yesterday's meeting.
• Apart from PMIs and in-line UK retail sales, little else was on the docket. Comments by ECB officials had little impact, including from Lane (underscoring need to keep rates at 4% for a sufficiently long period, alongside data dependence), while de Cos said it was too soon to start talking about rate cuts.
• The UK curve ended bull steeper, with 2Y yields benefiting from a continued pullback in BoE hiking expectations; Germany's curve was a little steeper, with the belly outperforming.
• BTPs underperformed overall, with spreads widening into the weekly close on a Reuters report that the 2023-24 fiscal deficit forecasts would be upwardly revised.
• Ratings reviews after hours include S&P on Germany. Next week's highlight will be the September round of preliminary Eurozone inflation data.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.1bps at 3.258%, 5-Yr is down 0.6bps at 2.75%, 10-Yr is up 0.2bps at 2.739%, and 30-Yr is up 2.3bps at 2.893%.
• UK: The 2-Yr yield is down 7bps at 4.803%, 5-Yr is down 6.2bps at 4.364%, 10-Yr is down 5.6bps at 4.249%, and 30-Yr is down 2.6bps at 4.683%.
• Italian BTP spread up 5.1bps at 185.5bps / Greek bond up 4.4bps at 146.4bps