EGBs-GILTS CASH CLOSE: UK Short End Crushed On Jobs Data

Stronger-than-expected UK jobs and wage data triggered the biggest selloff in short-dated Gilts in over 8 months Tuesday, with bear flattening in the curve that triggered a similar move in German yields.

• 2Y UK yields rose relentlessly over the day, shrugging off a US inflation report that was largely in line with expectations, and closed up over 26bp (most since Sep 26, 2022)
• Several BoE speakers today (incl Dhingra, Greene) did little to quell the hawkish speculation - Gov Bailey noted “we still think inflation is going to come down but it’s taking a lot longer than expected".
• That "longer than expected" is also the theme of UK rates markets, with BoE peak rates now seen reached in Feb 2024 (vs Dec 2023) and with pricing nearing a 6% handle for the first time since late last year (5.85% peak priced, 135bp from here).
• Eurozone bond / rate action was relatively tame by comparison to the UK, another theme of late. ECB hike pricing edged up marginally on the day, with a 25bp hike this Thursday fully expected - our meeting preview went out today.
• Periphery spreads narrowed, with 10Y BTP at fresh 14-month tights to Bund.
• Wednesday sees UK GDP data and the Federal Reserve decision.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 6bps at 2.974%, 5-Yr is up 5.4bps at 2.475%, 10-Yr is up 3.5bps at 2.423%, and 30-Yr is up 1.4bps at 2.564%.
• UK: The 2-Yr yield is up 26.1bps at 4.897%, 5-Yr is up 18.1bps at 4.528%, 10-Yr is up 9.6bps at 4.434%, and 30-Yr is up 4.3bps at 4.615%.
• Italian BTP spread down 3.7bps at 163.2bps / Greek down 4.4bps at 128.4bps