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EGBs-GILTS CASH CLOSE: Gilts Outperform With BoE Decision On Knife's Edge

BONDS

Gilts easily outperformed Bunds Wednesday, on the eve of a key BoE decision.

  • Eurozone flash July HICP came in slightly above what had been expected entering the week, though this had limited impact on ECB cut pricing which continues to see two full cuts by year end (MNI's Euro Inflation Insight is here - PDF).
  • Gilts stole the show, with the belly outperforming ahead of the Bank of England decision Thursday: 5Y yields outperformed, with both they and 10Y yields notably closed below the Mar/April lows and 2Y yields closing at then lowest since May 2023.
  • US data was on the soft side and the US Treasury refunding announcement brought no negative surprises, extending a nascent rally through the European afternoon.
  • The German curve bull flattened on the day. Periphery EGB spreads tightened modestly.
  • The Federal Reserve decision Wednesday evening is the most immediate event risk, but attention thereafter will firmly be on the BoE where a decision to cut 25bp or hold is on a knife's edge - MNI's preview is here (PDF).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 2bps at 2.531%, 5-Yr is down 3.2bps at 2.232%, 10-Yr is down 3.6bps at 2.304%, and 30-Yr is down 5.3bps at 2.514%.
  • UK: The 2-Yr yield is down 5.1bps at 3.826%, 5-Yr is down 8.1bps at 3.765%, 10-Yr is down 7.3bps at 3.97%, and 30-Yr is down 6.4bps at 4.536%.
  • Italian BTP spread down 1bps at 134.6bps / Spanish down 0.9bps at 81.2bps
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