EGBs-GILTS CASH CLOSE: Weaker, But Off Worst Levels

European core FI closed Friday weaker but well off the session's worst levels, as US data dictated price action.

• At the outset of Friday's session, Gilts and Bunds resumed their recent negative price action.
• Eurozone Dec flash inflation came in line with expectations, both coming into the week and after Thursday's French and German data (our Eurozone Inflation Insight is here). That translated into a muted market reaction, setting the stage for US data to drive price action for the rest of the day.
• A surprisingly high payrolls gain in December's US employment report initially spurred a global rates sell-off in early afternoon.
• But that would prove the low point for the day: the move fully reversed and then some as the underlying details appeared softer. A very weak ISM Services report in mid-afternoon accelerated the rally.
• Gilts underperformed Bunds, with the belly proving the weakest point on both curves for yet another session. Periphery EGB spreads widened slightly though were briefly tighter in the immediate aftermath of the US ISM data.
• Next week starts with EU (and potential EFSF) supply on Monday, along with German factory orders. and eurozone retail sales/confidence surveys.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.5bps at 2.568%, 5-Yr is up 3.8bps at 2.102%, 10-Yr is up 3.2bps at 2.156%, and 30-Yr is up 2.6bps at 2.376%.
• UK: The 2-Yr yield is up 4.6bps at 4.242%, 5-Yr is up 6.9bps at 3.756%, 10-Yr is up 6bps at 3.787%, and 30-Yr is up 3.4bps at 4.396%.
• Italian BTP spread up 0.4bps at 169.5bps / Greek up 3.5bps at 116.8bps