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EGBs-GILTS CASH CLOSE: Short End Crashes On UK Double-Digit CPI

BONDS

A higher-than-expected 10.1% UK July CPI reading (a 40-Yr high, vs 9.8% expected) set an extremely bearish tone for Wednesday trade, with short-end instruments badly underperforming as central bank hike expectations ratcheted up.

  • European curves bear flattened, with the UK leading the way, as 200+bp of BoE hikes are now priced in this cycle (including a decent chance of 75bp in Sept), vs 170bp yesterday.
  • The UK curve inverted further, 2s10s to lowest since 2008, 2s5s since 2007 as 2Y yields hit a post-2008 high.
  • The German short end also sold off, with ECB hike pricing higher but not as much as BoE.
  • The highest-beta EGB periphery sovereigns - Italy and Greece - underperformed, with 10Y spreads widening around 7bp.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

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A higher-than-expected 10.1% UK July CPI reading (a 40-Yr high, vs 9.8% expected) set an extremely bearish tone for Wednesday trade, with short-end instruments badly underperforming as central bank hike expectations ratcheted up.

  • European curves bear flattened, with the UK leading the way, as 200+bp of BoE hikes are now priced in this cycle (including a decent chance of 75bp in Sept), vs 170bp yesterday.
  • The UK curve inverted further, 2s10s to lowest since 2008, 2s5s since 2007 as 2Y yields hit a post-2008 high.
  • The German short end also sold off, with ECB hike pricing higher but not as much as BoE.
  • The highest-beta EGB periphery sovereigns - Italy and Greece - underperformed, with 10Y spreads widening around 7bp.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

Keep reading...Show less