EGBs-GILTS CASH CLOSE: Soft Italy Inflation Sets Stage For Rally

The UK curve twist steepened amid a strong short-end rally, while Germany's bull steepened Wednesday.

• Core FI rallied in the morning alongside softer-than-expected Italian June flash inflation data, a positive sign for doves ahead of the next two days' crucial eurozone readings.
• This contrasted with a widening of periphery EGB spreads as a few articles pointed to potentially more aggressive ECB balance sheet normalization (including a comment by Vujcic and various media reports).
• A Sintra panel with Lagarde, Bailey, Powell, and Ueda was more hawkish than expected for the most part, though European core yields still resolved lower by the cash close.
• Attention first thing Thursday morning will be on NRW state inflation in Germany, followed by Spain CPI later in the session.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.6bps at 3.104%, 5-Yr is down 5.2bps at 2.464%, 10-Yr is down 4.1bps at 2.315%, and 30-Yr is down 3bps at 2.361%.
• UK: The 2-Yr yield is down 12.7bps at 5.146%, 5-Yr is down 10.7bps at 4.568%, 10-Yr is down 5.9bps at 4.316%, and 30-Yr is up 0.3bps at 4.379%.
• Italian BTP spread up 3.5bps at 166.3bps / Greek up 5.4bps at 127.1bps