EGBs-GILTS CASH CLOSE: UK Yields Drop Sharply As Sunak Seals Win

GIlts easily outperformed global core FI peers Monday, with ex-UK Chancellor Sunak's victory in the Conservative leadership race appearing to augur renewed political and policy certainty.

• Indeed, 30Y UK yields nearly returned to pre-mini budget levels, with the UK curve bull steepening as BoE hike pricing subsided. BoE's Ramsden was the lone Europe central bank speaker, and said it was "really important" for the MPC to get fiscal clarity in time for the November policy decision.
• The German curve bull flattened. Weaker-than-expected European PMIs didn't bring any immediate market reaction upon release, but helped set a constructive tone for the FI session.
• Periphery EGBs outperformed Bunds: 10Y Greek spreads fell 12.4bp, with gains accelerating after PDMA announced a FRN auction Tuesday.
• The ECB decision looms large Thursday - our preview, looking for a 75bp hike, went out today (see here).

CLOSING YIELDS / 10-YR PERIPHERY EGB SPREADS TO GERMANY:

• Germany: The 2-Yr yield is down 3.5bps at 2.006%, 5-Yr is down 6.4bps at 2.148%, 10-Yr is down 8.7bps at 2.33%, and 30-Yr is down 10.4bps at 2.338%.
• UK: The 2-Yr yield is down 37.2bps at 3.427%, 5-Yr is down 33bps at 3.823%, 10-Yr is down 30.8bps at 3.746%, and 30-Yr is down 30.4bps at 3.756%.
• Italian BTP spread down 7.4bps at 225.6bps / Greek down 12.1bps at 252.2bps