EGBs-GILTS CASH CLOSE: Gilts Remain Under Pressure

Gilts dropped sharply and underperformed for another session Thursday, as the implications of April's high UK CPI reading continued to be digested.

• The UK curve bear flattened once again, with weakness focused on the 2-5Y segment as another 18bp of hikes were added to the implied BoE path (that' 65bp this week).
• Bunds weakened as well, with modest yield rises accelerating just ahead of the cash close, though with no apparent trigger (10Y jumped 3bp in the last 25 minutes of the session).
• Adding to the bearish tone was apparent progress on the US debt limit impasse, which pushed Treasury yields and the USD higher.
• ECB commentary (including Knot, Villeroy, and Nagel) wasn't impactful, and revised GDP numbers showing Germany falling into technical recession had little bearing either.
• Periphery spreads traded mixed, moving in Bunds' favour (despite the latter's sell-off) just before the cash close.
• UK retail sales data highlights the docket first thing Friday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4.8bps at 2.902%, 5-Yr is up 6.2bps at 2.531%, 10-Yr is up 5bps at 2.522%, and 30-Yr is up 3.7bps at 2.664%.
• UK: The 2-Yr yield is up 18.4bps at 4.556%, 5-Yr is up 19.2bps at 4.328%, 10-Yr is up 16bps at 4.374%, and 30-Yr is up 10.6bps at 4.65%.
• Italian BTP spread up 1bps at 187.6bps / Greek down 4.3bps at 138.4bps