EGBs-GILTS CASH CLOSE: Marginally Weaker As Data Is Second-Guessed

Bunds and Gilts faded after a constructive start Thursday, with negative data surprises being second-guessed.

• Core FI got off on the front foot as Q4 UK GDP came in weak and confirmed a technical recession in 2H 2023, but the move fades as the report wasn't seen to be shifting the needle significantly for BoE policy.
• Likewise, Bunds and Gilts got a boost in early afternoon trade amid mixed-to-soft US data highlighted by poor January retail sales but eventually reversed lower as the miss was seen to be at least partially influenced by poor weather, and US jobless claims/regional manufacturing surveys were more favourable.
• While there was plenty of central banker commentary, from ECB's Lagarde and BoE's Greene (sounding as though she won't soon vote for a cut) among others, there was little evident immediate reaction in rates markets.
• Even so, rate cut expectations drifted lower overall on the day, with 77bp in BoE cuts now seen in 2024 (vs 79bp Weds); ECB cut pricing was likewise pared by 2bp, last 112bp.
• Bunds underperformed Gilts, with the German curve leaning bear flatter; the UK curve marginally bear steepened. Periphery spreads were a little tighter
• UK retail sales will be the highlight early Friday, concluding a busy week for UK data; we also hear from ECB's Schnabel (and BoE's Pill after the close).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.5bps at 2.755%, 5-Yr is up 3bps at 2.332%, 10-Yr is up 2.2bps at 2.359%, and 30-Yr is up 2.2bps at 2.531%.
• UK: The 2-Yr yield is up 0.5bps at 4.58%, 5-Yr is up 0.6bps at 4.063%, 10-Yr is up 1bps at 4.054%, and 30-Yr is up 2.5bps at 4.604%.
• Italian BTP spread down 2bps at 149.6bps / Spanish down 1.4bps at 91.6bps