EGBs-GILTS CASH CLOSE: Villeroy Comments Help Underpin Afternoon Gains

Bunds and Gilts bull flattened Tuesday with periphery spreads compressing sharply. Gains were posted mainly in the afternoon.

• ECB's Villeroy said ECB can be patient as inflation is low; and that the idea of reducing the pace of PEPP buys in Q3 is "purely speculative" - helping boost the space, but particularly BTPs.
• In supply, UK sold GBP4bln of Mar-39 Gilt linker via syndication - which saw record demand and the highest amount in cash terms for a linker syndication; EU tapped Apr-36 bond for E460mln; Dutch sold E1.7bln of Jan-47 DSL at auction.
• German IFO slightly beat expectations; UK public sector borrowing lower than expected.
• On Weds, Italy sells up to E4.75bln of short-term BTP and BTPei; Germany sells E2.5bln of Bund. We get French confidence data and another appearance by Villeroy.

Closing yields/10-Yr Spreads to Bunds:

• Germany: The 2-Yr yield is down 0.7bps at -0.663%, 5-Yr is down 2.3bps at -0.553%, 10-Yr is down 2.7bps at -0.167%, and 30-Yr is down 2.3bps at 0.396%.
• UK: The 2-Yr yield is down 1.6bps at 0.016%, 5-Yr is down 1.8bps at 0.321%, 10-Yr is down 2.5bps at 0.786%, and 30-Yr is down 3.9bps at 1.32%.
• Italian BTP spread down 3.8bps at 112.6bps / Spanish spread down 2.3bps at 66bps