March 22, 2023 17:09 GMT
EGBs-GILTS CASH CLOSE: Strong UK CPI Boosts BoE Hike Prospects
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
- Germany: The 2-Yr yield is up 9bps at 2.707%, 5-Yr is up 6bps at 2.372%, 10-Yr is up 3.6bps at 2.328%, and 30-Yr is up 0.4bps at 2.323%.
- UK: The 2-Yr yield is up 21.6bps at 3.494%, 5-Yr is up 15.8bps at 3.374%, 10-Yr is up 8.4bps at 3.451%, and 30-Yr is up 4.4bps at 3.886%.
- Italian BTP spread up 1.8bps at 184.2bps / Spanish down 0.1bps at 103.9bps
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