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BONDS: EGBs-GILTS CASH CLOSE: Relief Rally As US CPI Comes In Low

BONDS
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Gilts and EGBs soared Wednesday after the much-anticipated US CPI report proved benign for bond markets.

  • Gilts initially strengthened after December CPI readings came in lower than expected, but reversed lower as the reading appeared to have been skewed downward by volatile components (namely airfares). They would recovered but set back anew on a weak Jul-34 Gilt auction.
  • Ultimately though, a US CPI report on the soft side of expectations triggered a sizeable global FI relief rally, in which Gilts outperformed peers across the curve after weeks of underperformance. UK yields ticked up toward the cash close amid a speech by BoE dove Taylor, but the move looked driven by external factors rather than the speech itself. The UK curve bull flattened overall.
  • Bunds largely tracked the wider global moves. The German belly outperformed on the curve, with EGB periphery spreads narrowing sharply as risk-sensitive assets rallied.
  • Thursday's schedule includes UK monthly activity data and final German and Italian inflation, as well as the accounts of the December ECB meeting.

Closing Yields / 10-Yr EGB Spreads To Germany:

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Gilts and EGBs soared Wednesday after the much-anticipated US CPI report proved benign for bond markets.

  • Gilts initially strengthened after December CPI readings came in lower than expected, but reversed lower as the reading appeared to have been skewed downward by volatile components (namely airfares). They would recovered but set back anew on a weak Jul-34 Gilt auction.
  • Ultimately though, a US CPI report on the soft side of expectations triggered a sizeable global FI relief rally, in which Gilts outperformed peers across the curve after weeks of underperformance. UK yields ticked up toward the cash close amid a speech by BoE dove Taylor, but the move looked driven by external factors rather than the speech itself. The UK curve bull flattened overall.
  • Bunds largely tracked the wider global moves. The German belly outperformed on the curve, with EGB periphery spreads narrowing sharply as risk-sensitive assets rallied.
  • Thursday's schedule includes UK monthly activity data and final German and Italian inflation, as well as the accounts of the December ECB meeting.

Closing Yields / 10-Yr EGB Spreads To Germany:

Keep reading...Show less