EGBs-GILTS CASH CLOSE: Modest Short-End Underperformance

The German and UK curves flattened slightly Monday as short-ends underperformed, with an uptick in risk appetite outweighing further indications of weaker German economic activity.

• A weak June IFO reading and a pullback in the weekly Bundesbank activity tracker added to last week's soft PMI reading in pointing to a weak end to Q2 for German growth.
• But with a lack of key developments in the French political landscape over the weekend ahead of Sunday's election, risk appetite picked up, helping cap EGB/Gilt gains.
• Equities regained some recently-lost ground (Eurostoxx futures +0.8%) with oil prices ticking higher on the day, EUR and GBP appreciating against the USD, and 10Y periphery EGB spreads tightening by a little under 2bp.
• The German and UK short-ends modestly underperformed, with central bank easing expectations pared back by around 1bp cumulatively through the end of 2024 for both ECB and BoE implieds.
• Tuesday's scheduled events include appearances by ECB's Stournaras, Nagel and Panetta. Flash Eurozone June inflation reports remain this week's data focus.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.6bps at 2.805%, 5-Yr is up 1.5bps at 2.43%, 10-Yr is up 0.7bps at 2.419%, and 30-Yr is up 1.5bps at 2.615%.
• UK: The 2-Yr yield is up 2bps at 4.19%, 5-Yr is up 0.9bps at 3.941%, 10-Yr is down 0.2bps at 4.081%, and 30-Yr is down 0.5bps at 4.584%.
• Italian BTP spread down 1.9bps at 151bps / Spanish down 1.7bps at 85.8bps