EGBs-GILTS CASH CLOSE: Bellies Underperform After US CPI Surprise

Stronger-than-expected US CPI reversed early modest gains for Bund and Gilts Tuesday, with UK yields hitting fresh multi-year highs.

• Both the German and UK curves saw belly underperformance, as global central bank hike expectations shot higher with Federal Reserve aggressiveness repriced higher post-CPI.
• BoE terminal pricing moved over 4.40% for mid-2023, last up 16bp on the session; end-2022 reached a new cycle high above 3.65%. This kept pressure on the UK short end/Belly, which underperformed German counterparts.
• Despite a significant rise in ECB hike pricing (10bp for end-year to a fresh high of 1.94%) and a broad risk-off move post-CPI, periphery EGB spreads maintained their tightening.
• 10Y BTPs/Bunds had hit a 3-week low of 221bp before reversing, but still finished tighter on the day.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is up 7.3bps at 1.392%, 5-Yr is up 8.5bps at 1.577%, 10-Yr is up 7.6bps at 1.729%, and 30-Yr is up 4.8bps at 1.798%.
• UK: The 2-Yr yield is up 8.9bps at 3.123%, 5-Yr is up 10.7bps at 3.096%, 10-Yr is up 8.7bps at 3.169%, and 30-Yr is up 3.9bps at 3.489%.
• Italian BTP spread down 4.3bps at 226.7bps / Greek down 2.2bps at 251.7bps