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EGBs-GILTS CASH CLOSE: Long End Impresses Again

BONDS

The long ends of the UK and German curves rallied for the 2nd consecutive session Wednesday. Once again the 30Y segment was a standout, with yields at that tenor pushing to the lowest levels since September.

  • While short-end/bellies were relatively inert, including weakness in Schatz and almost no change in Bobl - ECB and BoE hike prospects were little changed - 2Y and 5Y UK yields edged incrementally to fresh post-Jun lows.
  • There were almost no macro catalysts of note during the session, with the highlight being a jump in 1Y consumer inflation expectations in the ECB's CES survey that brought core FI down from morning highs.
  • Central bank speakers attempted to push back on recent rate cut talk, including ECB's Makhlouf ('far too early in my view' to discuss cuts) and Nagel (the 'last mile' may well be the hardest), as well as BoE's Bailey ('really too early to be talking about cutting rates'). but this had little discernable impact.
  • Instead it was a continued march lower in oil prices, a pullback in equities, and a general resumption of the trend begun last week post-US Fed decision / jobs report that saw long-end European FI rally.
  • Periphery spreads tightened, led by Italy, while PGBs lagged as political uncertainty continued to drag.
  • Following on from the US 10Y Treasury auction after the cash close Wednesday, a limited docket awaits Thursday, with the ECB's economic bulletin and multiple speakers (Villeroy, Lane, Lagarde, BoE's Pill) ahead.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 3.1bps at 3.015%, 5-Yr is down 0.8bps at 2.569%, 10-Yr is down 4.1bps at 2.617%, and 30-Yr is down 8.1bps at 2.813%.
  • UK: The 2-Yr yield is down 1.2bps at 4.62%, 5-Yr is down 0.2bps at 4.242%, 10-Yr is down 3bps at 4.24%, and 30-Yr is down 4.6bps at 4.691%.
  • Italian BTP spread down 2.9bps at 186.3bps / Portuguese up 1.1bps at 74.5bps

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