EGBs-GILTS CASH CLOSE: Short End Hit On 50bp ECB Hike Talk

Short-end yields rose sharply Tuesday in a bear flattening move as speculation rose over a 50bp ECB July hike.

• Reuters, then Bloomberg, cited ECB sources pointing to potential for a 50bp hike at Thursday's meeting vs the long-expected 25bp. Implied pricing rose accordingly though ended on a knife's edge at 37.5bp (a 50/50 chance of either 25/50bp).
• Afternoon headlines that Russian gas flows would restart sparked a risk-on move, which kept hike pricing elevated and weakened the German short-end.
• BoE's Bailey reiterated the BOE was contemplating a 50bp hike in August.
• MNI's ECB meeting preview went out today - and also of note was our Policy sources piece eyeing potential for broad lawmakers backing for Draghi if he decides to stay ahead of his crunch speech Wednesday (BTP spreads continued to fall Tuesday).

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

• Germany: The 2-Yr yield is up 10.9bps at 0.631%, 5-Yr is up 10.3bps at 1.01%, 10-Yr is up 5.6bps at 1.271%, and 30-Yr is up 2.3bps at 1.463%.
• UK: The 2-Yr yield is up 5.2bps at 2.036%, 5-Yr is up 3.5bps at 1.903%, 10-Yr is up 1.7bps at 2.174%, and 30-Yr is up 4.7bps at 2.681%.
• Italian BTP spread down 1.5bps at 205.4bps / Spanish down 2.2bps at 120.6bps