EGBs-GILTS CASH CLOSE: More Hawkish UK Data Sees Gilts Underperform

Gilts weakened and underperformed global peers Wednesday - including Bunds, which strengthened. This followed another hawkish UK data release in the form of July inflation, as core CPI surprised to the upside driven by services prices.

• The immediate reaction wasn't as big as Tuesday's following strong wage data, but UK yields continued to drift higher for most of the session and closed on the highs (yesterday they lost momentum and closed near their open levels).
• In contrast to Gilts, Bund yields drifted lower all day, benefiting from a solid long-end auction, and taking a risk-off cue from Chinese economic concerns.
• The UK curve bear flattened overall, with slight bull steepening in Germany.
• Periphery spreads closed mostly wider, with BTPs again underperforming.
• A relatively quiet data schedule awaits Thursday with Dutch unemployment before the open and Eurozone trade. The Norges Bank decision will garner most attention in the morning, with French and Finnish bond supply later on.

• Germany: The 2-Yr yield is down 2.5bps at 3.085%, 5-Yr is down 2.4bps at 2.663%, 10-Yr is down 2.2bps at 2.65%, and 30-Yr is down 1.8bps at 2.729%.
• UK: The 2-Yr yield is up 6.6bps at 5.203%, 5-Yr is up 6.9bps at 4.664%, 10-Yr is up 5.7bps at 4.646%, and 30-Yr is up 5.6bps at 4.834%.
• Italian BTP spread up 1.8bps at 170.2bps / Spanish up 1.4bps at 105bps