EGBs-GILTS CASH CLOSE: UK Curve Bull Flattens As BoE Holds

Gilts easily outperformed Bunds Thursday, with the bullish implications of Wednesday's US Treasury refunding and dovish-leaning Fed meeting still reverberating through European rates.

• The BoE decision and communications were largely as expected (rate hold on a 6-3 vote split), but market pricing of future cuts increased, with UK rates rallying across the curve.
• Bund futures rose to session highs in early afternoon as the BoE decision was digested. 10Y German yields hit their lowest levels since mid-September, but finished off the lows.
• The UK curve bull flattened sharply, with Germany's twist flattening.
• Periphery EGBs rallied, with 10Y BTP spreads to Bunds nearing the tightest levels (sub 190bp) since early Oct.
• ECB's Schnabel speaks after market close Thursday. Friday's calendar includes French industrial data and Spanish/Italian/Eurozone labour market reports, as well as multiple speakers including BOE's Pill.

CLOSING YIELDS / 10-YR PERIPHERY EGB SPREADS TO GERMANY:

• Germany: The 2-Yr yield is up 1.8bps at 3.009%, 5-Yr is down 1.6bps at 2.6%, 10-Yr is down 4.7bps at 2.717%, and 30-Yr is down 7bps at 3.004%.
• UK: The 2-Yr yield is down 5.8bps at 4.739%, 5-Yr is down 11.7bps at 4.341%, 10-Yr is down 11.7bps at 4.382%, and 30-Yr is down 9.3bps at 4.868%.
• Italian BTP spread down 4.9bps at 191.4bps / Spanish down 2.2bps at 105.2bps