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EGBs-GILTS CASH CLOSE: Rally On Lack Of Hawkish ECB Surprises

BONDS

Bunds outperformed Gilts Thursday, as the ECB meeting was in line with expectations.

  • The decision to leave rates unchanged with communication virtually identical to the September meeting and no hawkish surprises (eg on balance sheet policy) saw a modest drop in EGB yields to session lows.
  • Periphery spreads tightened after Pres Lagarde said early in the press conference that the Governing Council didn't discuss changes to PEPP policy at this meeting.
  • However, Reuters reported just before the close that ECB policymakers agreed to debate PEPP policy early next year - pushing BTP/Bund spreads back up above 200bp.
  • European instruments also benefited concurrently from US data that was seen as soft (including core Q3 inflation and weekly jobless claims).
  • The German and UK curves finished steeper, with outperformance at the short end/belly.
  • Friday's docket includes Italian and French sentiment data, the ECB's Survey of Professional Forecasters, and Spanish GDP., with attention likely to turn quickly to Eurozone flash October inflation data Mon and Tues.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 5bps at 3.075%, 5-Yr is down 4.4bps at 2.725%, 10-Yr is down 2.8bps at 2.861%, and 30-Yr is unchanged at 3.126%.
  • UK: The 2-Yr yield is down 2.4bps at 4.82%, 5-Yr is down 2.7bps at 4.542%, 10-Yr is down 1.3bps at 4.597%, and 30-Yr is up 0.6bps at 5.068%.
  • Italian BTP spread down 1.7bps at 200.9bps / Greek down 5.1bps at 134.1bps
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