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BONDS: EGBs-GILTS CASH CLOSE: US Tariff Talk Spurs Late Rally

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European bonds rallied late in Friday's session on the latest US tariff intrigue, reversing earlier losses.

  • Bunds and Gilts weakened sharply after the US employment report showed higher than expected wage gains and lower unemployment.
  • But global core instruments rallied in a risk-off move toward the cash close as Reuters reported that US President Trump was planning to issue reciprocal tariffs as early as Friday (though there was no more detail provided).
  • German industrial production was much weaker than expected, but wasn't a market mover. The nominal neutral rate of interest in the eurozone was likely in a range of 1.75% to 2.25% as of Q4 2024, according to estimates by ECB staff released Friday. BOE's Pill set a high bar to him voting for a 50bp cut.
  • The German curve twist steepened, with the UK's leaning bull flatter.
  • Periphery EGB spreads widened into the cash close following the Trump tariff report, with BTPs underperforming on the day.
  • Next week's scheduled highlights include UK and Eurozone GDP data, along with appearances by ECB's Lagarde and Schnabel (with an MNI event with ECB's Elderson) and BOE's Mann, Bailey, and Greene.

Closing Yields / 10-Yr EGB Spreads To Germany

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European bonds rallied late in Friday's session on the latest US tariff intrigue, reversing earlier losses.

  • Bunds and Gilts weakened sharply after the US employment report showed higher than expected wage gains and lower unemployment.
  • But global core instruments rallied in a risk-off move toward the cash close as Reuters reported that US President Trump was planning to issue reciprocal tariffs as early as Friday (though there was no more detail provided).
  • German industrial production was much weaker than expected, but wasn't a market mover. The nominal neutral rate of interest in the eurozone was likely in a range of 1.75% to 2.25% as of Q4 2024, according to estimates by ECB staff released Friday. BOE's Pill set a high bar to him voting for a 50bp cut.
  • The German curve twist steepened, with the UK's leaning bull flatter.
  • Periphery EGB spreads widened into the cash close following the Trump tariff report, with BTPs underperforming on the day.
  • Next week's scheduled highlights include UK and Eurozone GDP data, along with appearances by ECB's Lagarde and Schnabel (with an MNI event with ECB's Elderson) and BOE's Mann, Bailey, and Greene.

Closing Yields / 10-Yr EGB Spreads To Germany

Keep reading...Show less