EGBs-GILTS CASH CLOSE: Gilts Underperform In Bear Flattening Move

European bonds weakened Tuesday in response to stronger-than-expected UK wage data and another robust US inflation reading.

• The UK's bear flattening move stood out, with 2Y yields having their 2nd biggest daily rise of 2023 and 2s10s closing at the most inverted since September.
• This came as BoE terminal hike pricing rose 10bp on the day, following data showing UK wages posted record (ex-pandemic) growth in January, while a largely in-line US CPI print reinforced the global "higher for longer" narrative.
• ECB peak rate pricing hit a cycle high at 3.68% for September; ECB's Makhlouf said he could see rates above 3.5% this year.
• Periphery spreads tightened slightly, led by Greece.
• UK CPI is Wednesday's early highlight.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 7.6bps at 2.858%, 5-Yr is up 8.2bps at 2.505%, 10-Yr is up 7bps at 2.438%, and 30-Yr is up 5.6bps at 2.378%.
• UK: The 2-Yr yield is up 19.1bps at 3.83%, 5-Yr is up 16.1bps at 3.51%, 10-Yr is up 11.9bps at 3.521%, and 30-Yr is up 7.6bps at 3.89%.
• Italian BTP spread down 1.8bps at 178.6bps / Greek down 3.7bps at 179.9bps