EGBs-GILTS CASH CLOSE: US-Led Rout Overshadows Softer Euro Inflation

The German and UK curves steepened sharply as long-end bonds sold off Tuesday following a 4-day weekend for European markets.

• The overriding bearish dynamic emanated from Treasuries which had sold off Monday on solid US data and a patient stance on rate cutting from Fed Chair Powell.
• European data was mixed: solid final PMIs were offset by softer-than-expected Italian and French inflation prints on Friday and German HICP a touch softer than expected today.
• That sets Eurozone-wide HICP up to come in below consensus tomorrow on the headline measure, which probably kept the short-end from selling off in line with US counterparts (2024 Fed rate cut expectations have pulled back 4bp since Mar 28, with the ECB equivalent increasing 2bp).
• The German curve twist steepened, with the UK's bear steepening.
• BTPs easily underperformed, with 10Y spreads to Bunds more than 5bp wider, versus counterparts on the periphery which closed slightly tighter.
• Dutch inflation data early Wednesday provides the final signal for the Eurozone-wide read later in the morning, which is the session focus.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1bps at 2.839%, 5-Yr is up 6.1bps at 2.382%, 10-Yr is up 10.2bps at 2.4%, and 30-Yr is up 12.5bps at 2.58%.
• UK: The 2-Yr yield is up 6.8bps at 4.24%, 5-Yr is up 11.5bps at 3.938%, 10-Yr is up 15.2bps at 4.085%, and 30-Yr is up 15.3bps at 4.576%.
• Italian BTP spread up 5.7bps at 144bps / Spanish bond spread down 0.2bps at 86.2bps