EGBs/Gilts: Recover Following UK Data; US CPI Next

Core/semi EGBs have recovered from intraday lows, with Bunds +2 ticks at 133.47 and OAT futures flat at 128.11. Gilts remain lower on the day (-15 ticks at 97.53), some 10 ticks above the day's worst levels.

• The initial weakness came as UK wages data printed firmer than expected, with a lower-than-expected unemployment rate also adding to the pressure. A reminder that January CPI is due tomorrow at 0700GMT/0800CET.
• The moves away from intraday lows came in spite of a heavy EGB supply slate from Italy and Germany and an uptick in Brent crude futures this morning. One explanation may be the weakness in European equities, with participants taking profit after a strong run higher in recent weeks and putting money to work elsewhere.
• The German ZEW saw mixed results, with the current situation component weaker than expected and the expectations component stronger. Bunds have drifted a few ticks lower on the latter's outperformance.
• The German and French cash curves have twist flattened, while UK yields are 3.0 - 4.0bps higher, with 5Y tenors under the most pressure.
• Periphery spreads are generally tighter to Bunds. The 10-year BTP/Bund spread is 0.9bps tighter at 153.8bps in spite of the equity market weakness, though the removal of hedging-related pressure will have promoted some compression in recent trade.
• The remainder of today's regional docket is light, with cross-market focus squarely on the US CPI print at 1330GMT/1430CET.