EGBs-GILTS CASH CLOSE: Strongest Core FI Rally Of 2024 Led By Belly

European core FI rallied strongly Wednesday in a session beset with heavy data flow and event risk.

• Early focus was on French inflation data which came in on the soft side of expectations, with German state level readings later in the morning pointing to a largely in-line national print.
• While the initial Bund gains faded by late morning, European safe havens enjoyed their best rally of 2024 so far as Treasuries soared.
• Multiple factors were involved: weakness in banking equities, an as-expected US Treasury quarterly auction size announcement removing some uncertainty, and soft US labour market indicators and January MNI Chicago PMI raising potential for near-term rate cuts.
• The rally in both the German and UK curves was led by the belly, with 5Y yields down 11bp.
• Periphery EGB spreads widened amid a broader risk-off move; GGBs underperformed.
• The Federal Reserve decision takes focus after the European cash close, with attention set to swiftly turn to Italian/Eurozone inflation data Thursday morning (consensus remains relatively unchanged since the start of the week), followed by the Bank of England.
• MNI's BoE preview is here: the vote split, guidance and forecasts will be in focus.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 10bps at 2.428%, 5-Yr is down 11.3bps at 2.051%, 10-Yr is down 10.2bps at 2.166%, and 30-Yr is down 9.1bps at 2.405%.
• UK: The 2-Yr yield is down 8.1bps at 4.258%, 5-Yr is down 11.2bps at 3.745%, 10-Yr is down 10.7bps at 3.794%, and 30-Yr is down 7.4bps at 4.456%.
• Italian BTP spread up 3.3bps at 156.2bps / Greek up 3.9bps at 104.9bps