EGBs-GILTS CASH CLOSE: Late Recovery

European yields pulled back sharply in the final hours of the week's cash trade, leaving German instruments stronger on the day, and paring Gilt losses.

• Developments in Europe were limited Friday, with the US again dominating market-moving events as reports emerged of debt limit negotiations breaking down in Washington, hammering risk appetite.
• 10Y Gilt yields dropped 10bp in the last two hours of trade (from a 2023 high of 4.093%), with Bunds pulling back 7bp.
• There were few identifiable catalysts for the early weakness, but it came alongside strengthening equities and firming ECB/ BoE hike pricing.
• Peripheries are in focus over the weekend. Moody's review of Italy's credit rating will garner attention after Friday's market close, while Greece holds legislative elections on May 21 (our briefing is here).
• Otherwise, next week gets off to a relatively quiet start, with little data, and mainly ECB speakers of note (Vujcic, Guindos, Holzmann, Lane, Villeroy appear Monday).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 0.5bps at 2.757%, 5-Yr is down 1bps at 2.406%, 10-Yr is down 1.8bps at 2.428%, and 30-Yr is down 2.9bps at 2.603%.
• UK: The 2-Yr yield is up 0.5bps at 3.96%, 5-Yr is up 2.7bps at 3.822%, 10-Yr is up 3.9bps at 3.996%, and 30-Yr is up 3.3bps at 4.414%.
• Italian BTP spread down 2.3bps at 184.4bps / Greek down 0.4bps at 159.1bps