EGBs-GILTS CASH CLOSE: Soft UK CPI Print Sets Bullish Tone For Short End

Gilt yields fell sharply Wednesday on softer-than-expected UK inflation data, with Bunds following suit in a generally constructive session.

• While the details of the UK CPI data meant the print wasn't as soft as it initially appeared (e.g. an unexpected drop in volatile airfares), the 0.3pp miss in services Y/Y CPI vs expectations in particular drove a solidly dovish reaction that helped Gilts outperform throughout the session.
• That said, BoE's Bailey noted later in the day that the CPI and previous session's (solid) labour force data "don't broadly" change the timing of the first rate cut.
• Multiple ECB speakers didn't really shift pricing, including Guindos, Makhlouf, Vujcic and Lane. Data (Eurozone GDP / Industrial Production) didn't move the needle either.
• The UK curve closed bull steeper, with Germany's leaning bull flatter. As equity futures regained ground from Tuesday's drop, periphery EGB spreads closed tighter, with BTPs outperforming - the 10Y differential to Bunds fell to its lowest close of the month.
• The heavy UK data slate continues first thing Thursday with GDP figures, while ECB's Lagarde and and Lane, and BoE's Greene and Mann, make appearances.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.7bps at 2.73%, 5-Yr is down 5.6bps at 2.302%, 10-Yr is down 5.6bps at 2.337%, and 30-Yr is down 4.9bps at 2.509%.
• UK: The 2-Yr yield is down 13.6bps at 4.575%, 5-Yr is down 12.8bps at 4.057%, 10-Yr is down 10.7bps at 4.044%, and 30-Yr is down 7.3bps at 4.579%.
• Italian BTP spread down 3.5bps at 151.6bps / Spanish down 2.2bps at 93bps