EGBs-GILTS CASH CLOSE: Weak Eurozone PMIs Provide Boost Into The Weekend

The UK and German curves bull flattened Friday to close out a very strong week for European bonds.

• Unexpectedly weak German and French December flash PMIs saw core/semi-core EGBs soar early in the session. UK Services PMI beat consensus, but the negative impulse on Gilts was fleeting.
• An unexpected pushback against Fed rate cut speculation by New York Fed President Williams saw EGBs and Gilts pull away from the session's best levels in the afternoon in sympathy with Treasuries.
• But the momentum begun by the Fed's dovish communications midweek and the PMIs saw core FI enjoy a strong close, with UK and German yields down roughly the same magnitude on the day.
• The BOE announced in Q1 2024 it would move from APF sales with equal sizes across maturity buckets, to a higher weight on shorter-maturity sales (by way of equal sizes in terms of initial proceeds when the instruments were purchased). Market reaction was limited.
• 10Y Gilts closed their 2nd best week of the year, falling 35.4bp.
• Periphery EGB spreads were mostly wider, with the exception of Greece which had underperformed in previous sessions.
• Next week kicks off with German IFO data and multiple ECB officials appearing, including Schnabel and Lane.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 6.3bps at 2.504%, 5-Yr is down 8bps at 1.999%, 10-Yr is down 10.3bps at 2.016%, and 30-Yr is down 11.2bps at 2.215%.
• UK: The 2-Yr yield is down 7.2bps at 4.29%, 5-Yr is down 8.1bps at 3.736%, 10-Yr is down 10.2bps at 3.687%, and 30-Yr is down 13.4bps at 4.16%.
• Italian BTP spread up 3.4bps at 170.7bps / Greek down 0.8bps at 116bps