EGBs-GILTS CASH CLOSE: UK 2s Rally, Bunds Stronger Pre-ECB

The UK curve bull steepened violently Wednesday as BoE rate hike expectations were pared back, while EGBs were relatively steady with peripheries outperforming ahead of Thursday's ECB decision.

• 2Y UK yields were briefly poised for their biggest drop since 2009, with more than one 25bp hike priced out of the BoE hiking path at one point with senior BoE officials' TSC testimony were seen leaving a 50bp or 75bp hike next week "on a knife edge".
• Pricing is about the same now for the ECB (preview here) and BoE Sept meetings, at 65-66bp.
• The German curve bull flattened, while periphery EGB spreads fell ahead of the ECB, led by BTPs.
• Thursday is shaping up as very busy, both with the ECB meeting, and potentially more info on the UK fiscal package to be unveiled (which would impact BoE pricing).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 1.3bps at 1.105%, 5-Yr is down 4bps at 1.374%, 10-Yr is down 6.1bps at 1.577%, and 30-Yr is down 7.8bps at 1.681%.
• UK: The 2-Yr yield is down 20.2bps at 3.001%, 5-Yr is down 11bps at 2.917%, 10-Yr is down 6.7bps at 3.034%, and 30-Yr is down 4.4bps at 3.369%.
• Italian BTP spread down 7.1bps at 229.1bps / Greek down 2.1bps at 257.9bps