EGBs-GILTS CASH CLOSE: Rally Continues On US Disinflation Narrative

European yields fell sharply for a 2nd consecutive session Thursday as the dovish implications of Wednesday's soft US inflation data continued to reverberate.

• Most of the day's German yield drop was in place by midday European trade, with a modest retracement thereafter, even as another round of weak US price data (this time PPI) appeared to reinforce the disinflationary narrative.
• UK yields continued to head lower by late afternoon as BoE hike prospects dimmed further, (-7bp on the day) in a cross-asset move that saw the US dollar sink further and equities push higher.
• 5Y UK yields fell the most across European instruments on the day as the short-end/belly rallied despite less soft-than-expected UK GDP data.
• Periphery spreads were mixed.
• Otherwise, data had little impact (final French CPI, weak Eurozone IP), while the ECB's accounts of the June meeting brought no surprises.
• Friday's schedule is light, with no major European data or central bank speakers expected.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 7.7bps at 3.152%, 5-Yr is down 8.8bps at 2.565%, 10-Yr is down 9.3bps at 2.485%, and 30-Yr is down 6.2bps at 2.529%.
• UK: The 2-Yr yield is down 9.2bps at 5.137%, 5-Yr is down 12.6bps at 4.566%, 10-Yr is down 9.2bps at 4.422%, and 30-Yr is down 6.6bps at 4.539%.
• Italian BTP spread down 2.8bps at 165.4bps / Greek up 4.1bps at 142.1bps