EGBs-GILTS CASH CLOSE: Yields Pull Back As Hike Expectations Fade

UK and German cash yields pulled back from session highs to finish mostly lower Wednesday. Bunds outperformed, with modest bull steepening in the curve; UK yields closed mixed.

• 10Y Bund yields tested multi-year highs of 2.5744% (hitting 2.5740%) before retracing by the cash close as the Feb-33 saw a strong auction and ECB terminal pricing pulled back 6bp.
• Likewise UK 10Y yields pulled back from 6-week highs, reversing some of the post-PMI selloff, mirroring a pullback in BoE hiking expectations.
• Various catalysts for the intraday reversal included ECB's Villeroy saying that market hike pricing had gone too far, and Fed's Bullard taking some of the impetus out of the FOMC minutes later Wednesday by saying he sees a good shot at subduing inflation this year.
• Periphery EGB spreads stabilised after an early widening.
• Thursday sees Eurozone final inflation figures and commentary from BoE's Mann and ECB's de Cos.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.8bps at 2.921%, 5-Yr is down 2.1bps at 2.581%, 10-Yr is down 0.9bps at 2.52%, and 30-Yr is up 4.5bps at 2.508%.
  
• UK: The 2-Yr yield is up 0.4bps at 3.923%, 5-Yr is up 0.2bps at 3.562%, 10-Yr is down 1.4bps at 3.6%, and 30-Yr is down 2.1bps at 3.988%.
  
• Italian BTP spread up 0.3bps at 194bps / Spanish down 0.6bps at 98.4bps