EGBs-GILTS CASH CLOSE: Long End Rallies Hard

Core European FI rallied strongly Tuesday, taking their cue from US Treasuries. Risk appetite faded in the European afternoon, with equities slipping but periphery spreads holding in.

• UK and German 30 Yrs rallied 7+bps. Multiple catalysts for the safe-haven strength: multi-year highs in oil reversed sharply, the dollar strengthened, and data was on the soft side.
• German factory orders unexpectedly contracted sharply in May and ZEW expectations dipped more than expected, while the US Services ISM missed expectations.
• Supply today was UK (Gilts, GBP4.25bn), Germany (ILBs,EUR475mn allotted), France (E5bln of syndicated LT OAT).
• Wednesday sees German IP and Italy retail sales data; UK sells GBP0.6bln of linkers and Germany sells E5bln of Bobl.

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

• Germany: The 2-Yr yield is down 1.8bps at -0.678%, 5-Yr is down 3.7bps at -0.621%, 10-Yr is down 5.8bps at -0.268%, and 30-Yr is down 7.4bps at 0.224%.
• UK: The 2-Yr yield is down 0.6bps at 0.051%, 5-Yr is down 3.6bps at 0.278%, 10-Yr is down 8bps at 0.634%, and 30-Yr is down 7.1bps at 1.165%.
• Italian BTP spread down 0.3bps at 101.2bps/ Spanish up 0.4bps at 61.2bps