EGBs-GILTS CASH CLOSE: UK Short-End Remains Under Pressure Pre-BoE

The UK curve bear flattened sharply Monday, with no relief evident at the short end ahead of CPI data and the BoE decision later this week. German yields leaned bear steeper.

• Short-end Gilt yields rose relentlessly from the open onward as BoE implied peak rates neared 6% in anticipation of Thursday's MPC move (25bp hike fully priced, with 20% prob of a 50bp raise). 2Y yields posted their 8th biggest daily rise of the year (nearly 14bp), closing at fresh post-2008 highs.
• ECB yields edged higher in sympathy with UK developments, with pressure maintained by a (characteristically) hawkish speech by Schnabel warning against the risks of underestimating inflation and doing too little tightening outweighing those of overtightening.
• Periphery EGB spreads finished modestly wider, with BTPs underperforming (a modest unwind after hitting 14-month tights to Bunds on Monday).
• German PPI is the data highlight early Tuesday, while we get multiple ECB speakers starting with Rehn and Muller, with Simkus at an MNI event later.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.7bps at 3.16%, 5-Yr is up 3.8bps at 2.62%, 10-Yr is up 4.3bps at 2.517%, and 30-Yr is up 5.3bps at 2.599%.
• UK: The 2-Yr yield is up 13.8bps at 5.083%, 5-Yr is up 11.1bps at 4.685%, 10-Yr is up 8bps at 4.492%, and 30-Yr is up 3.2bps at 4.557%.
• Italian BTP spread up 4.1bps at 160.4bps / Spanish up 1.4bps at 92.6bps