EGBs-GILTS CASH CLOSE: Soft US CPI Drives European Bull Steepening

European curves bull steepened Thursday as a downside US inflation surprise drove a dovish repricing in central bank cut expectations.

• With the highly anticipated US June CPI release coming in softer than expected, global FI rallied sharply in the European afternoon session.
• Earlier in the session, Gilts had weakened after firmer-than-expected UK GDP data, and follow-through from hawkish rhetoric late Wednesday from BoE's Pill and Mann.
• Bunds outperformed Gilts on the day, with both the UK and German curves bull steepening.
• In sympathy with US Fed cut repricing, an August BoE cut is now back to around a 50/50 proposition, vs closer to 40% pre-CPI. While the ECB still isn't seen moving at its meeting next week, September cumulative cut pricing pushed up to close to 90%, vs under 80% pre-US CPI.
• The 10Y OAT/Bund spread reversed early tightening to close basically flat. Periphery EGB spreads closed mixed and little changed overall.
• Friday's European calendar sees few impactful events (final French and Spanish inflation), with US inflation data (PPI) once again likely to be at the fore.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 10.5bps at 2.792%, 5-Yr is down 8.7bps at 2.439%, 10-Yr is down 7bps at 2.463%, and 30-Yr is down 3.7bps at 2.658%.
• UK: The 2-Yr yield is down 5.5bps at 4.068%, 5-Yr is down 5.8bps at 3.922%, 10-Yr is down 5.2bps at 4.074%, and 30-Yr is down 4.7bps at 4.589%.
• Italian BTP spread unchanged at 132.1bps / Spanish bond spread up 0.6bps at 76.9bps