EGBs-GILTS CASH CLOSE: US Services Data Sinks Bunds

Gilts easily outperformed Bunds Wednesday, with bear flattening in the German curve, and bull steepening in the UK's.

• Core FI yields looked set for a fairly constructive by mid-afternoon European trade, with an early sell-off across Bunds and Gilts having faded. Very weak German factory orders had seen a brief bid in Bund futures on the open, but corporate and govvie supply applied some pressure early.
• Most of the early intrigue was ECB-speaker related, with yields higher as Knot sounded typically hawkish, and later Kazimir expressing a clear preference for another hike, as next week's decision approaches.
• Yields reversed higher a couple hours before the cash close as a stronger than expected US ISM Services reading saw Treasuries sell off sharply (a hawkish hold by the Bank of Canada may have contributed).
• A key exception was the UK short end which rallied throughout the session - the BoE TSC testimony was seen as not reinforcing a hawkish narrative, with Bailey sounding relatively constructive on the outlook.
• Greek instruments continued to trade in relatively volatile fashion, underperforming on the periphery despite little relevant catalyst in evidence.
• Thursday morning sees German IP data, several ECB speakers, Spanish/French bond supply, and the BoE Decision Maker Survey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 7.7bps at 3.122%, 5-Yr is up 6.3bps at 2.659%, 10-Yr is up 4.1bps at 2.653%, and 30-Yr is up 1.6bps at 2.773%.
• UK: The 2-Yr yield is down 3.2bps at 5.239%, 5-Yr is up 0.7bps at 4.81%, 10-Yr is up 0.8bps at 4.533%, and 30-Yr is down 0.9bps at 4.784%.
• Italian BTP spread up 2.2bps at 175bps / Greek up 5.5bps at 137.1bps