EGBs-GILTS CASH CLOSE: UK Curve Lightly Bear Steepens Pre-BoE

Bunds underperformed Gilts Wednesday, with the latter little changed on the day, with attention already turning to the Bank of England decision Thursday.

• With another fairly quiet calendar on both the European and US fronts, ECB speakers took most focus, and they were on the hawkish side (Holzmann and Wunsch reaffirming the likelihood of a June cut but not committing any further) but not moreso than would have been expected, meeting with a muted reaction.
• Data (German / Spanish industrial production, Italian retail sales) was soft but had little lasting impact.
• The belly of the German curve underperformed, while the UK saw light bear steepening.
• Periphery EGB spreads were little changed, having seen some early widening fade.
• Multiple ECB speakers including Vujcic and Guindos appear Thursday, but the main event will be the BoE.
• As we detail in our preview (PDF here), while a rate hold is virtually assured and MNI Markets team’s base case is for another 8-1 vote in favour of such a decision vs cut, risks include a more dovish 7-2 vote and the degree to which the inflation forecasts are lowered.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3bps at 2.93%, 5-Yr is up 4.3bps at 2.5%, 10-Yr is up 4.2bps at 2.462%, and 30-Yr is up 3.8bps at 2.578%.
• UK: The 2-Yr yield is down 0.1bps at 4.309%, 5-Yr is up 0.1bps at 4.022%, 10-Yr is up 1.4bps at 4.139%, and 30-Yr is up 0.8bps at 4.61%.
• Italian BTP spread down 0.6bps at 133.5bps / Spanish up 0.2bps at 78.5bps