EGBs-GILTS CASH CLOSE: Gilts Underperform Bunds On ECB Eve

European core FI weakened Wednesday, with Gilts slightly underperforming Bunds ahead of the ECB decision Thursday.

• A negative tone for core FI was set early by stronger-than-expected German IFO report, and somewhat less bad-than-anticipated Euro lending data (and prior to the European open, strong Australian CPI).
• Italian (E4bln), German (E2bln), and UK (GBP3bln) supply also weighed.
• While weakness was orderly throughout the session, GIlts and Bunds extended losses in the last hour of trade after a WSJ report emerged that Israel had agreed to delay an invasion of Gaza - alleviating the risk-off tone and boosting European equities to session highs.
• The German and UK curves bear steepened. Italy led periphery weakness, but spreads closed off session wides.
• GGBs outperformed, with yields up but not as much as for Bunds.
• Attention Thursday is entirely on the ECB decision and communications - our preview is here.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.9bps at 3.125%, 5-Yr is up 4.5bps at 2.769%, 10-Yr is up 6.1bps at 2.889%, and 30-Yr is up 7.4bps at 3.126%.
• UK: The 2-Yr yield is up 5.5bps at 4.844%, 5-Yr is up 5.4bps at 4.569%, 10-Yr is up 7.1bps at 4.61%, and 30-Yr is up 6bps at 5.062%.
• Italian BTP spread up 2.7bps at 202.6bps / Greek down 3.6bps at 139.2bps