EGBs-GILTS CASH CLOSE: Twist Steepening As Hike Expectations Retrace

The German and UK curves modestly twist steepened Thursday, with the short end benefiting from a retracement in central bank tightening expectations.

• Yields hit a session low in mid-afternoon as markets digested a softer-than-expected US producer price report, but edged back toward opening levels as equities picked up some steam toward the close.
• ECB implied rate pricing hit a session low early on after a Reuters sources story pointing to the Governing Council hiking 25bp at the May meeting vs the 50bp floated by Holzmann on Weds, remaining steady thereafter (peak depo down 6bp on the day, BoE's -4bp).
• BoE Chief Econ Pill told an MNI event that the UK could see a positive demand shock amid a strong labor market, but remained ambiguous on the outlook for rate hikes, saying there is scope to do too much as well as too little.
• Periphery EGB spreads widened slightly, with Greece underperforming.
• Friday's docket includes final French and Spanish CPI, with BOE's Tenreyro and ECB's Nagel scheduled to speak.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.7bps at 2.779%, 5-Yr is down 0.5bps at 2.392%, 10-Yr is up 0.2bps at 2.372%, and 30-Yr is up 1.7bps at 2.462%.
• UK: The 2-Yr yield is down 0.2bps at 3.517%, 5-Yr is up 0.1bps at 3.406%, 10-Yr is up 0.5bps at 3.575%, and 30-Yr is up 4.7bps at 3.942%.
• Italian BTP spread up 0.5bps at 185bps / Greek up 1.6bps at 189.4bps