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EGBs-GILTS CASH CLOSE: Short End Weaker On Higher Terminal Rate Pricing

BONDS

Short-end German yields rose sharply in a broader bear flattening move across European FI Thursday, with higher terminal rates being priced in once again.

  • Schatz yields hit a fresh 11-year high (1.552%) as more ECB speakers (including de Guindos, Makhlouf) eyed further tightening.
  • Peak ECB rates are seen at 2.61% in June 2023, up 12bp on the day and reflecting a full 25bp rate hike more than had been priced in Tuesday prior to the high US CPI release.
  • Gilts outperformed earlier as 5Y BOE/Ipsos inflation expectations came in on the low side (3.1% vs 3.5% in May), dampening potential for a 75bp hike next week. But BoE peak rates of 4.50% are equal to the peak in early September, but up 20bp from Tuesday.
  • Periphery EGB spreads closed broadly unchanged; GGBs outperformed.

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

  • Germany: The 2-Yr yield is up 11.7bps at 1.54%, 5-Yr is up 6.8bps at 1.647%, 10-Yr is up 4.3bps at 1.759%, and 30-Yr is up 0.1bps at 1.752%.
  • UK: The 2-Yr yield is up 7.5bps at 3.166%, 5-Yr is up 4.7bps at 3.119%, 10-Yr is up 3.2bps at 3.164%, and 30-Yr is up 4.5bps at 3.475%.
  • Italian BTP spread up 0.6bps at 229.2bps / Greek down 4.7bps at 248.5bps
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