EGBs-GILTS CASH CLOSE: Short-End UK Yields Continue To Soar

The UK short end continued its sell-off Wednesday, with the curve bear steepening and badly underperforming its global peers. Higher inflation expectations on the back of soaring energy prices continues to be the key driver.

• At the beginning of last week, 2Y Gilts were trading just above 2%, but at one point today traded at 2.95% and posted a 6th straight post-2008 high close.
• BoE rates are now seen exceeding 4.3% by mid-next year (up 27bp implied on the day, and vs under 3% two weeks ago). ECB rate hike pricing has ticked up too but not to the same extent (mid-2023 seen just under 2%).
• Periphery spreads were fairly well behaved, with BTP spreads narrowing slightly.
• Attention remains firmly on Friday's speech by Fed Chair Powell at Jackson Hole.

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

• Germany: The 2-Yr yield is up 6.7bps at 0.921%, 5-Yr is up 5.4bps at 1.158%, 10-Yr is up 5.1bps at 1.37%, and 30-Yr is up 1.7bps at 1.504%.
• UK: The 2-Yr yield is up 21.9bps at 2.938%, 5-Yr is up 20.3bps at 2.703%, 10-Yr is up 12.2bps at 2.698%, and 30-Yr is up 5.1bps at 2.934%.
• Italian BTP spread down 1.5bps at 231.8bps / Greek up 0.6bps at 262.5bps