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EGBs-GILTS CASH CLOSE: Short End Underperforms As ECB Eyes July Hike

BONDS

The German curve twist flattened Thursday as the ECB hiked by the expected 25bp and Pres Lagarde cemented expectations for a further raise in July. Gilts outperformed Bunds slightly, but the UK curve likewise twist flattened.

  • Schatz sold off on the ECB decision, which included an unexpected upgrade to the 2025 inflation forecast.
  • While Lagarde underpinned hike pricing for the next meeting ("very likely we will continue to increase rates in July"), unexpectedly weak US jobless claims figures helped drag global yields back down and ultimately yields finished off their session highs.
  • Periphery spreads tightened with the exception of Greece, which saw widening for the 4th consecutive session following last Friday's lack of a positive ratings action from Fitch.
  • Friday's morning's focus will be the final, detailed Eurozone readings, along with several ECB speakers including Holzmann, Rehn, Muller, Centeno, and Villeroy.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 11bps at 3.126%, 5-Yr is up 9.8bps at 2.605%, 10-Yr is up 5.2bps at 2.504%, and 30-Yr is down 0.4bps at 2.58%.
  • UK: The 2-Yr yield is up 8.5bps at 4.907%, 5-Yr is up 6.3bps at 4.535%, 10-Yr is down 0.8bps at 4.384%, and 30-Yr is down 5.7bps at 4.502%.
  • Italian BTP spread down 1bps at 162.6bps / Greek up 4.4bps at 135.7bps
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