EGBs-GILTS CASH CLOSE: Sharply Weaker On Supply And BoC Surprise

Large supply weighed heavily on EGBs Wednesday morning, with losses accelerating in the afternoon after a Bank of Canada rate hike that wasn't fully expected.

• With core euro FI already on the back foot in the face of heavy corporate issuance and large sovereign supply (including E13B in Spain 10Y syndication), the BoC move delivered another blow, triggering weakness in Treasuries that transmitted across the Atlantic.
• The BoC's hawkishness boosted the implied cumulative hiking priced for the ECB and BoE by 3bp / 7bp respectively, to fresh June highs. The German and UK curve bellies underperformed slightly in the aftermath.
• While Spain's large issuance was a key talking point, BTPs underperformed, with spread widening
• The session's data was on the weak side (German industrial production, Italy retail sales), but didn't have any lasting impact. Nor did commentary by Schnabel, Makhlouf or Knot alter any ECB rate expectations.
• Ireland rounds out the week's Euro sovereign supply Thursday, while we also get Eurozone final Q1 GDP data.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 8.4bps at 2.938%, 5-Yr is up 9bps at 2.474%, 10-Yr is up 8.4bps at 2.456%, and 30-Yr is up 4.9bps at 2.604%.
• UK: The 2-Yr yield is up 9.4bps at 4.572%, 5-Yr is up 7.2bps at 4.256%, 10-Yr is up 4.4bps at 4.251%, and 30-Yr is up 2.8bps at 4.501%.
• Italian BTP spread up 4.3bps at 182.7bps/ Spanish up 1.8bps at 101.7bps