EGBs-GILTS CASH CLOSE: UK Short End Soars On Downside CPI Surprise

The UK short end rallied sharply Wednesday as the highly anticipated June inflation report delivered a downside surprise, with Bunds initially following suit but closing weaker.

• UK headline and core CPI both came in 2 tenths below expected, with the rates strip erasing nearly a full 25bp hike from the implied BoE path.
• The UK curve bull steepened, with 2Y yields at one point 23bp lower (which would have been the biggest one-day drop since March).
• Yields retraced higher over the course of the session as equities soared and commodity prices rose, leaving Gilt gains diminished and the Bund rally reversed.
• Eurozone core CPI was revised up 0.1pp in the final, but only a marginal increase when unrounded, and had little lasting impact.
• Periphery spreads were mixed, with Greece outperforming after a solid 5Y GGB auction.
• Attention first thing Thursday will be on German producer prices.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.6bps at 3.074%, 5-Yr is up 3.2bps at 2.515%, 10-Yr is up 4.9bps at 2.438%, and 30-Yr is up 4.4bps at 2.469%.
• UK: The 2-Yr yield is down 18.1bps at 4.91%, 5-Yr is down 16bps at 4.31%, 10-Yr is down 11.6bps at 4.215%, and 30-Yr is down 10bps at 4.377%.
• Italian BTP spread up 1.7bps at 164.2bps / Greek down 4.2bps at 138.5bps