EGBs-GILTS CASH CLOSE: Short End Continues To Underperform

The short ends of European curves continued to underperform Wednesday, with inversions increasing amid a long-end rally.

• Another day, another move higher in central bank terminal rate expectations, following Tuesday's hawkish comments by Fed Chair Powell.
• ECB terminal depo implied hit a cycle high of 4.18%; BoE's ticked 5.00% for the first time since the fiscal turmoil of October.
• Meanwhile, long-end yields moved lower. German 2s10s ticked -70bp, marking a further 20bp of inversion this week.
• Periphery EGBs shrugged off higher ECB tightening prospects, instead mirroring equity gains. 10Y BTP spreads closed below 180bp for the first time since mid-Feb.
• Italy's Visco criticised ECB colleagues giving multi-meeting rate hike guidance. BoE's Dhingra was dovish as expected. Neither provoked much market reaction.
• In data, German /Italian retail sales and German industrial production both beat expectations, while the Eurozone final GDP revision was in line.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.5bps at 3.336%, 5-Yr is down 1.3bps at 2.833%, 10-Yr is down 4.6bps at 2.646%, and 30-Yr is down 6.4bps at 2.543%.
• UK: The 2-Yr yield is down 0.9bps at 3.791%, 5-Yr is down 3bps at 3.67%, 10-Yr is down 5.7bps at 3.765%, and 30-Yr is down 7bps at 4.081%.
• Italian BTP spread down 5.3bps at 178.2bps / Spanish down 1.3bps at 101.7bps