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EGBs-GILTS CASH CLOSE: UK Short End Hit Hard By Weekend BoE Commentary

BONDS

The UK short end stood out as Monday's underperformer, with increasingly hawkish perceptions of future BoE policy exacerbating the sell-off.

  • Comments by BoE's Bailey and, especially, Saunders over the weekend led to nearer-term pricing of UK rate hikes (BofA for one moved timing for 1st hike to Dec 2021 from Feb 2022).
  • ECB rate hike pricing was dragged more hawkish by the UK move. Some ECB speakers (Knot / Lane) gave varying perspectives on inflation risks.
  • Bunds underperformed Gilts as the day went on, but the German long end still ended up slightly outperforming the UK. Periphery spreads traded mixed, with Portugal outperforming.
  • Little else on the docket Monday, with the US on holiday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 2bps at -0.671%, 5-Yr is up 3.1bps at -0.502%, 10-Yr is up 3.1bps at -0.12%, and 30-Yr is up 2.7bps at 0.357%.
  • UK: The 2-Yr yield is up 5.1bps at 0.595%, 5-Yr is up 4.2bps at 0.809%, 10-Yr is up 3.1bps at 1.189%, and 30-Yr is up 2.1bps at 1.521%.
  • Italian BTP spread up 0.8bps at 103.6bps / Portuguese down 1.2bps at 51.6bps
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