EGBs-GILTS CASH CLOSE: Gilts Strengthen On Eve Of Key CPI Release

Gilts outperformed Bunds Tuesday, ahead of key UK data releases Wednesday.

• Morning developments were limited, focused mainly on corporate/sovereign supply (including a solid 20Y Gilt auction), with German PPI on the soft side and a pickup in Q1 Eurozone labour costs garnering some interest ahead of Thursday's negotiated wage print.
• Global core FI was buffeted by North American developments in the afternoon, strengthening on soft Canadian CPI, but pulling back as Fed Governor Waller said it would take "several more" constructive inflation prints before he would consider rate cuts.
• In the end, gains resumed with Bund and Gilt futures hitting fresh session highs into the cash close.
• The 5Y-10Y segment outperformed on both the German and UK curves, while EGB periphery spreads widened modestly on the day.
• Attention swiftly turns to UK CPI/PPI/fiscal data early Wednesday.
• Our CPI preview is here (PDF): the MNI Markets team sees two-way risks to the MNI-compiled sell-side median for services CPI (5.47%), with slightly more upside risks to the Bloomberg consensus (5.4%).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.3bps at 2.97%, 5-Yr is down 2.9bps at 2.544%, 10-Yr is down 3bps at 2.499%, and 30-Yr is down 2.4bps at 2.642%.
• UK: The 2-Yr yield is down 3.6bps at 4.31%, 5-Yr is down 3.6bps at 4.011%, 10-Yr is down 3.9bps at 4.13%, and 30-Yr is down 3.8bps at 4.611%.
• Italian BTP spread up 1.4bps at 129.8bps / Spanish up 1.2bps at 76.7bps