EGBs-GILTS CASH CLOSE: Gilts Underperform Bunds Post-ECB, Pre-BoE

Gilts underperformed Bunds in a risk-on session Friday, with both the German and UK curves bear steepening.

• Following a sharp drop at the open (aligning with a bounce in equities overnight as US bank fears dissipated), the rise in UK and German yields was fairly steady, with the exception of a stronger-than-expected US jobs report that saw yields spike to session highs.
• Periphery EGB spreads tightened, with Greece leading the way, with 10Y GGBs closing at the tightest level to Bunds since January 2022.
• ECB hike pricing stabilised after Thursday's fall (our review of the decision went out today), flat on the day with terminal depo at 3.65%. ECB speakers didn't make much difference, nor did softer-than-expected economic data (retail sales, German industrial orders).
• Looking ahead to next week, UK markets are closed Monday due to holidays, but the BoE decision takes centre stage Thursday, BoE terminal pricing rose 7bptoday to 4.89%, though there is room for a surprise either way in next week's decision with just 80% pricing for a 25bp raise vs a pause.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 9.3bps at 2.572%, 5-Yr is up 10.9bps at 2.231%, 10-Yr is up 10.1bps at 2.291%, and 30-Yr is up 9.7bps at 2.463%.
• UK: The 2-Yr yield is up 11.4bps at 3.792%, 5-Yr is up 11.2bps at 3.594%, 10-Yr is up 12.8bps at 3.781%, and 30-Yr is up 11.3bps at 4.182%.
• Italian BTP spread down 3.1bps at 190.1bps / Greek down 12.5bps at 174.7bps