EGBs-GILTS CASH CLOSE: UK Politics Drive Rally (In Spite Of US CPI)

In another session of large moves, the biggest driver Wednesday was UK politics, eclipsing the impact of another above-expected US CPI print.

• Gilt yields fell to session lows around midday on multiple reports the UK Gov't was set to "U-turn" on its fiscal package (30Y down 72bp from the Weds high at one point). Bunds followed along.
• But EGBs/Gilts sold off sharply (Bunds underperforming Gilts) after US Sept CPI data came in hot.
• Core FI recovered slightly after a large uptake in the BoE inflation-linked Gilt purchase op (the nominal long-dated op saw lighter takeup, no reac).
• Yields finished closer to session lows than highs with flattening in both the German and UK curves. Bonds didn't share in a large rally in global equities / dollar weakness toward the end of the cash session, which had little obvious catalyst.

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

• Germany: The 2-Yr yield is up 8.8bps at 1.915%, 5-Yr is up 2.5bps at 2.076%, 10-Yr is down 3.3bps at 2.281%, and 30-Yr is down 6.2bps at 2.294%.
• UK: The 2-Yr yield is down 21.3bps at 3.804%, 5-Yr is down 22.9bps at 4.244%, 10-Yr is down 23.7bps at 4.199%, and 30-Yr is down 27bps at 4.548%.
• Italian BTP spread down 3.1bps at 239.2bps / Greek down 7bps at 260.2bps