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EGBs-GILTS CASH CLOSE: Solid Gilt Gains Ahead Of UK CPI

BONDS

European government bonds strengthened Tuesday despite strong US economic data briefly casting doubt on near-term Fed rate cut narratives.

  • Core FI rallied in morning trade, alongside a move lower in equities and oil, but the constructive move stalled out in early afternoon.
  • While US retail sales and import price readings were higher than expected, thereby trimming Federal Reserve easing expectations slightly, the global core bond sell-off was capped by soft Canadian inflation data.
  • Core European FI subsequently recovered most losses, with Gilts outperforming Bunds on the day. The UK curve bull steepened, with Germany's bull flattening. Periphery spreads closed mixed, with BTPs outperforming and GGBs underperforming.
  • Attention turns to Wednesday's UK CPI data - MNI's preview is here (including an outlook for Thursday's labour market release).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 3.6bps at 2.763%, 5-Yr is down 5.2bps at 2.393%, 10-Yr is down 4.5bps at 2.427%, and 30-Yr is down 4.4bps at 2.616%.
  • UK: The 2-Yr yield is down 8bps at 3.985%, 5-Yr is down 5.2bps at 3.887%, 10-Yr is down 5.2bps at 4.049%, and 30-Yr is down 5.8bps at 4.548%.
  • Italian BTP spread down 0.3bps at 127.2bps / Greek up 0.8bps at 96.5bps

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