EGBs-GILTS CASH CLOSE: Shrugging Off U.S. Inflation Surprise

Tuesday saw mixed results for Bunds and Gilts, with periphery EGB spreads continuing to tighten throughout the session.

• The biggest catalyst of the day - by some distance - was the much-higher-than-expected June inflation reading from the US, which caused global core FI yields to spike to session highs.
• But 10Y Bund and Gilt yields then fell to session lows as the figure was seen as transitory. Gilts maintained their gains, while Bunds faded.
• The data overshadowed massive supply in Europe: >E30bln in eurozone (Germany, Italy, Netherlands, EU syndication) and GBP7bln Gilt (Jan-39 syndication).
• A rather quieter supply day Weds: Germany sells E4bln of Aug-31 Bund, while Portugal sells up to E1bln of OT. We also get UK inflation data and appearances by ECB's Schnabel and BOE's Ramsden.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is unchanged at -0.672%, 5-Yr is down 0.1bps at -0.599%, 10-Yr is up 0.1bps at -0.294%, and 30-Yr is up 0.6bps at 0.211%.
• UK: The 2-Yr yield is down 0.1bps at 0.093%, 5-Yr is down 0.1bps at 0.295%, 10-Yr is down 1.9bps at 0.632%, and 30-Yr is down 3.3bps at 1.125%.
• Italian BTP spread down 2.4bps at 100.9bps / Spanish down 2bps at 61.6bps