EGBs-GILTS CASH CLOSE: Softer UK Labour Data Sees Gilts Outperform Bunds

Gilts outperformed Bunds for a second day this week Tuesday as UK labour market data was seen bolstering the case for BoE cuts.

• UK wage data came in on the soft side of consensus, with the unemployment rate also a touch higher than expected, helping spur an early Gilt bid (our review of the data is here).
• The highlight of the global session was US CPI data which spurred a selloff in rates upon initial release as the core figure was above expectations.
• The initial move reversed briefly as some softer details of the report were digested, but ultimately Treasuries resolved decisively lower, dragging down core European FI.
• ECB's Holzmann said in an MNI interview published today that a rate cut by June would depend on inflation projections being confirmed. UK implied rates ticked lower toward the end of the session as BoE's Bailey noted that concerns about second-round inflation have fallen.
• The German curve bear flattened with the UK's bull flattening. Periphery EGB spreads closed tighter in a largely risk-on session, with 10Y BTP/Bund moving well below 130bp.
• UK data features once again early Wednesday, with GDP / activity data. Eurozone industrial production is out later in the morning.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4.3bps at 2.847%, 5-Yr is up 3.8bps at 2.359%, 10-Yr is up 2.7bps at 2.33%, and 30-Yr is up 1.4bps at 2.472%.
• UK: The 2-Yr yield is down 1.7bps at 4.22%, 5-Yr is down 2.3bps at 3.871%, 10-Yr is down 2.5bps at 3.946%, and 30-Yr is down 0.7bps at 4.403%.
• Italian BTP spread down 4.7bps at 127.9bps / Greek down 4.2bps at 95.4bps