EGBs-GILTS CASH CLOSE: Inflation Shock Sinks UK Short End

The UK short-end sold off the most since September 2022 in a strong bear flattening curve move Wednesday, with Gilts easily underperforming Bunds.

• April UK CPI came in above all expectations, with core accelerating to a 31-year high 6.8% Y/Y vs 6.2% expected and the survey high 6.6%.
• Gilts dropped sharply in the aftermath, though pared some of those losses later in the session, in part because BoE's Bailey didn't compound the hawkish sentiment in an afternoon appearance.
• 2Y yields rose the most in 8 months (over 23bp) as 34bp of hikes were added to the BoE's hiking path, with longer-dated instruments faring relatively better.
• The German curve also bear flattened in sympathy with UK move, but yields pulled back over the course of the session, with Buxl closing stronger.
• Periphery spreads widened slightly amid risk-off trade.
• A fairly quiet data session awaits Thursday, but there will be plenty of central bank speakers including ECB's Nagel, Villeroy and Centeno, and BoE's Haskel.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.2bps at 2.854%, 5-Yr is up 1.8bps at 2.469%, 10-Yr is up 0.3bps at 2.472%, and 30-Yr is down 1.5bps at 2.627%.
• UK: The 2-Yr yield is up 23.7bps at 4.372%, 5-Yr is up 14.5bps at 4.136%, 10-Yr is up 5.6bps at 4.214%, and 30-Yr is up 1.1bps at 4.544%.
• Italian BTP spread up 1.4bps at 186.6bps / Spanish up 1.5bps at 106.4bps