EGBs-GILTS CASH CLOSE: UK Curve Belly Leads Broader Sell-Off

Core European FI pulled back sharply Wednesday, with Gilts underperforming Bunds and periphery EGB spreads widening.

• Global bond weakness began with the Asia-Pacific overnight session as above-expected Australian inflation data kicked off a round of hawkish central bank repricing.
• The sell-off carried on steadily through the day as supply was digested (Gilt syndication, Bund auction), German IFO data came in firm, and Bund and Gilt futures saw downside technical breaks.
• Implied 2024 ECB rate cuts were pared by 4bp to 72bp; for the BoE, the 48bp implied was 7bp less than seen in the prior session.
• The shift in the BoE outlook translated into belly underperformance on the UK curve, while the German curve bear steepened. With less ECB accommodation implied, periphery EGB spreads widened, exacerbated by risk-off moves elsewhere.
• Thursday's agenda includes French confidence surveys and German GfK consumer confidence, and appearances by ECB's Schnabel and Lagarde.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4.4bps at 2.971%, 5-Yr is up 7.8bps at 2.588%, 10-Yr is up 8.6bps at 2.588%, and 30-Yr is up 8.2bps at 2.732%.
• UK: The 2-Yr yield is up 9.5bps at 4.446%, 5-Yr is up 9.7bps at 4.221%, 10-Yr is up 9.3bps at 4.334%, and 30-Yr is up 8.2bps at 4.798%.
• Italian BTP spread up 5.3bps at 140bps / Spanish up 2.3bps at 79.6bps