EGBs-GILTS CASH CLOSE: US Bank Panic Sparks Massive Short-End Rally

A global flight to safety and sharp downward repricing of ECB and BoE tightening expectations saw a historic rally across EGBs and Gilts Monday.

• With concerns over US banking stability mounting, the German curve bull steepened sharply, with Schatz yields seeing their biggest-ever drop (41bp, and 52bp at one point).
• March ECB implied hike pricing (our meeting preview is here) fell 8bp on the day, but rose from session lows of 33bp to just under 38bp after MNI's sources piece "ECB Clings To 50Bp Hike Plan Amid Market Turmoil".
• Around 80bp of hikes have been priced out of the ECB cycle altogether, including 50bp today (had been as much as 100bp intraday ), with terminal now seen at 3.38% vs 4.18% last week.
• Periphery spreads widened sharply, led by GGBs.
• The Gilt move was more limited from a historical standpoint given comparisons to last autumn's budget-related volatility, but 2Y yields dropped the most since October. BoE hike pricing dropped 37bp Monday, and is off 55bp since last Thursday (terminal Bank rate now seen at 4.36%).
• Further developments in US banks will be eyed overnight, with the focus of Tuesday's schedule being US CPI.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 40.7bps at 2.69%, 5-Yr is down 31.5bps at 2.328%, 10-Yr is down 24.9bps at 2.259%, and 30-Yr is down 19.2bps at 2.276%.
• UK: The 2-Yr yield is down 27.9bps at 3.363%, 5-Yr is down 24.8bps at 3.277%, 10-Yr is down 27bps at 3.37%, and 30-Yr is down 17.7bps at 3.835%.
• Italian BTP spread up 11.3bps at 192.4bps / Greek up 21.8bps at 204.4bps