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EGBs-GILTS CASH CLOSE: Upward Hike Repricing Keeps Pressure On Short End

BONDS

European curves continued to flatten Friday, with short-end UK yields continuing to rise sharply.

  • 2Y UK yields hit a fresh 2023 high (3.635% intraday), though German Schatz stole the headlines by briefly hitting the highest since 2008 (2.773%).
  • The main catalyst was continued upward repricing of central bank hike prospects and pricing out of cuts, with more speakers today (including ECB's Kazaks in an MNI interview) pointing to the hiking cycle extending beyond March.
  • 110bp of further ECB hikes are now seen (up 6bp), just off the late Dec highs; the BoE is seen closer to its peak (52bp away), though that's up 11+bp.
  • Just as they narrowed Thursday on rallying equities/risk, so did EGB periphery spreads widen Friday as European stocks retreated.
  • A quieter schedule ahead Monday, with focus firmly on UK employment, Eurozone GDP and US CPI Tuesday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 6.9bps at 2.761%, 5-Yr is up 7bps at 2.4%, 10-Yr is up 6.1bps at 2.364%, and 30-Yr is up 5.1bps at 2.323%.
  • UK: The 2-Yr yield is up 12.8bps at 3.628%, 5-Yr is up 12.1bps at 3.336%, 10-Yr is up 10.5bps at 3.396%, and 30-Yr is up 7.7bps at 3.813%.
  • Italian BTP spread up 2.9bps at 184.5bps / Spanish up 1.6bps at 94.9bps
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