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EGBs-GILTS CASH CLOSE: Strong UK CPI Boosts BoE Hike Prospects

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The UK curve bear flattened sharply Wednesday as a stronger-than-expected February CPI reading boosted implied BoE tightening.

  • A jump in February services inflation was the highlight of the CPI beat, and led BoE terminal hike pricing jumped over 30bp, with around 68bp of further increases seen to a September peak. A 25bp hike Thursday is now 92% priced.
  • Despite closing 5bp below session highs, 2Y UK yields increased by the most in a single session since September on the higher BoE rate pricing.
  • The German curve also bear flattened, mirroring the UK move but by a lesser degree (unsurprising given Tues saw the biggest Schatz selloff in 15 years).
  • The bearish moves peaked by early afternoon trade, pulling back thereafter with the Federal Reserve rate decision awaited an hour after the cash close.
  • EGB periphery spreads were mixed on the session, with BTPs underperforming.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

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The UK curve bear flattened sharply Wednesday as a stronger-than-expected February CPI reading boosted implied BoE tightening.

  • A jump in February services inflation was the highlight of the CPI beat, and led BoE terminal hike pricing jumped over 30bp, with around 68bp of further increases seen to a September peak. A 25bp hike Thursday is now 92% priced.
  • Despite closing 5bp below session highs, 2Y UK yields increased by the most in a single session since September on the higher BoE rate pricing.
  • The German curve also bear flattened, mirroring the UK move but by a lesser degree (unsurprising given Tues saw the biggest Schatz selloff in 15 years).
  • The bearish moves peaked by early afternoon trade, pulling back thereafter with the Federal Reserve rate decision awaited an hour after the cash close.
  • EGB periphery spreads were mixed on the session, with BTPs underperforming.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

Keep reading...Show less