EGBs-GILTS CASH CLOSE: Selloff Defies Soft Eurozone Data (Again)

Bunds and Gilts reversed an intraday rally to finish lower Wednesday, with weakness accelerating into the cash close as the UK and German core curves bear steepened.

• The biggest data of the day appeared mostly dovish. French and Spanish industrial production on the one hand were above-expected, but the more important Spanish and Italian services PMIs disappointed, and an ECB survey showed a continued decline in eurozone consumers' 1-year inflation expectations.
• The release of downwardly revised Eurozone Composite final PMI alongside the soft ECB survey helped boost EGBs briefly, but other than that there was a lack of overt triggers for the weakness. That dynamic was similar to Monday's bear flattening on weak manufacturing PMI.
• One factor potentially weighing was plenty of supply looming Thursday including 10/20/30-year French OATs, 6/10/50-year Spanish Oblis.
• Overall UK instruments underperformed, with BoE terminal Bank Rate pricing hitting a fresh high above 6.4%. BTP spreads tightened, reversing Tuesday's widening (which was the biggest daily move in 2 months).
• Thursday's docket includes the BOE's decision maker panel survey, German factory orders and Eurozone retail sales.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.5bps at 3.236%, 5-Yr is up 0.9bps at 2.61%, 10-Yr is up 2.5bps at 2.478%, and 30-Yr is up 4.2bps at 2.49%.
• UK: The 2-Yr yield is up 5.8bps at 5.377%, 5-Yr is up 9bps at 4.778%, 10-Yr is up 7.8bps at 4.494%, and 30-Yr is up 6.6bps at 4.488%.
• Italian BTP spread down 5.7bps at 168.9bps / Spanish up 3.8bps at 105.4bps