EGBs-GILTS CASH CLOSE: Rally On Another Dovish ECB Report

European bonds rallied Tuesday as Bloomberg published a sources piece pointing to a final 50bp ECB hike in Feb with smaller hikes starting in March.

• Similar to the price action following last week's MNI sources piece that pointed to potential for a dovish stepdown in the hiking pace, terminal ECB hike pricing fell sharply (by 17bp at one point).
• Bunds held their gains made in the aftermath, with the curve bull steepening.
• 10Y BTP/Bund spreads tested last week's 8-month low of 177bp, but closed the session a little wider of that. GGBs underperformed as Greece sold new 10Y via syndication.
• Gilts underperformed overall but moved to new session highs on the ECB report. Earlier, UK labour market data showed wage growth a little stronger than expected but the rest of the report was mixed.
• Bonds' strong close came in spite of overnight event risk ahead, with the Bank of Japan decision expected around 0300GMT, and UK CPI at 0700GMT.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 10.9bps at 2.457%, 5-Yr is down 8.2bps at 2.108%, 10-Yr is down 8.4bps at 2.091%, and 30-Yr is down 5.6bps at 2.091%.
• UK: The 2-Yr yield is down 5.4bps at 3.462%, 5-Yr is down 3.6bps at 3.276%, 10-Yr is down 6bps at 3.324%, and 30-Yr is down 6bps at 3.667%.
• Italian BTP spread down 4.2bps at 180.1bps / Greek up 5.3bps at 203.6bps