EGBs-GILTS CASH CLOSE: UK Short End Leads Rally

Gilts outperformed Bunds Wednesday, as global core FI soared following a softer-than-expected US June inflation reading.

• Having strengthened in European morning trade, a solid drop in UK and German yields accelerated sharply on the US core CPI slowdown.
• While the rally paused briefly, it resumed after the expected 25bp hike from the Bank of Canada was out of the way.
• The UK short end soared as rates markets almost fully took out a 25bp hike from the BoE path (a sharp reversal after Tuesday's rise on UK wage data), with the curve bull steepening.
• Germany couldn't keep up, with ECB terminal rate pricing remaining fairly stubbornly riveted on 4.00%, but the belly outperforming with Bobl yields down ~12%.
• Periphery EGBs strengthened sharply following the US data amid a broader risk-on rally.
• Thursday's schedule begins with UK GDP and final June French inflation data.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 8.7bps at 3.229%, 5-Yr is down 11.6bps at 2.653%, 10-Yr is down 10.1bps at 2.578%, and 30-Yr is down 6.9bps at 2.591%.
• UK: The 2-Yr yield is down 19.7bps at 5.229%, 5-Yr is down 19.4bps at 4.692%, 10-Yr is down 14.9bps at 4.514%, and 30-Yr is down 9.2bps at 4.605%.
• Italian BTP spread down 5.7bps at 171.2bps / Greek down 3bps at 141bps