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:
- Germany: The 2-Yr yield is up 15.4bps at 0.731%, 5-Yr is up 15.4bps at 0.898%, 10-Yr is up 11.2bps at 1.083%, and 30-Yr is up 6.2bps at 1.292%.
- UK: The 2-Yr yield is up 24.8bps at 2.403%, 5-Yr is up 18.3bps at 2.148%, 10-Yr is up 16.3bps at 2.288%, and 30-Yr is up 10.8bps at 2.623%.
- Italian BTP spread up 7bps at 223.3bps / Greek up 6.7bps at 243.2bps