EGBs-GILTS CASH CLOSE: Rare Downside Euro CPI Surprise, Hawkish Outcome

Core Europe FI continued to weaken Wednesday, despite the first below-expected Eurozone inflation print since March 2021 (10.0% vs 10.4% expected).

• While the headline data confirmed pricing for a 50bp vs 75bp ECB hike in Dec, EGB yields rose as terminal rate pricing jumped as the unchanged core Y/Y was seen indicating sticky price pressures.
  
• The Bund yield rise stalled by late morning, but Gilts continued to weaken, while BTP spreads widened, with a speech by Fed Chair Powell eyed with caution after the European cash close.
• A very weak MNI Chicago PMI reading pulled back global yields temporarily, but overall US data was positive and maintained pressure.
• Gilts underperformed Bunds; the UK curve bear steepened, with Germany's bear flattening on higher ECB rate expectations.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.6bps at 2.132%, 5-Yr is up 1.3bps at 1.938%, 10-Yr is up 0.9bps at 1.931%, and 30-Yr is up 0.2bps at 1.824%.
• UK: The 2-Yr yield is up 5.6bps at 3.309%, 5-Yr is up 5bps at 3.274%, 10-Yr is up 6.3bps at 3.163%, and 30-Yr is up 6.9bps at 3.427%.
• Italian BTP spread up 4.1bps at 194bps / Greek down 1.4bps at 222.6bps