EGBs-GILTS CASH CLOSE: Morning Selloff, Afternoon Rally... Again

Bunds and Gilts strengthened again Wednesday, and for the third session in a row, an early sell-off reversed in the afternoon on weaker-than-expected US data.

• Core European FI sold off early on strong eurozone data including Spain/Italy Service PMIs and German factory orders.
• But as with Monday's soft ISM Manufacturing and Tuesday's disappointing US JOLTS data, today's dovish catalysts were US ADP private payrolls and ISM Services, both boosting the US slowdown narrative and adding to expectations of near-term Fed rate cuts.
• European rates responded in kind, with pronounced bull steepening in the German curve as ECB terminal hike pricing pulled back (down 6bp on the day).
• That contrasted with stubborn BoE pricing, which was basically unchanged. The UK curve twist steepened modestly.
• BTPs outperformed, with spreads falling sharply into the cash close after having earlier widened post US ISM data.
• The holiday-shortened trading week ends Thursday with German industrial production and a French OAT auction.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 7.7bps at 2.524%, 5-Yr is down 6.4bps at 2.178%, 10-Yr is down 6.7bps at 2.182%, and 30-Yr is down 7bps at 2.266%.
• UK: The 2-Yr yield is down 1.2bps at 3.341%, 5-Yr is down 1.8bps at 3.256%, 10-Yr is down 0.6bps at 3.428%, and 30-Yr is up 2.1bps at 3.772%.
• Italian BTP spread down 3.3bps at 183.3bps / Spanish down 0.4bps at 102.7bps