EGBs-GILTS: UK Yields Sharply Higher On Week, But Bunds Steady

Gilts continued to underperform Bunds Friday despite soft UK retail sales data.

• After gapping stronger at the open, Gilt futures faded somewhat over the course of the session. Bunds continued higher for the most part, with some early morning strength after a Corriere report that the ECB would rebuke the Italian government for its windfall bank tax.
• The UK curve leaned bull steeper, with Germany's bull flattening.
• There were no major catalysts (final July Eurozone CPI was unrevised, no other data / speakers of note), with cross-market moves of greater note, particularly for European equities which hit multi-month lows.
• Despite the risk-off move and the move lower in Bund yields, periphery EGB spreads largely held their ground.
• Looking back on the week, price action reflected the market focus on mostly inflationary UK data (including CPI and wage growth): UK 2Y yields rose 17bp vs flat for Schatz; UK 10Y yields were up 15bp vs unch for Bund.
• Next week starts off with a relatively quiet schedule, picking up on Wednesday with flash PMIs, with the Fed's Jackson Hole symposium starting on Thursday and German IFO on Friday.

Friday Cash Yield Levels:

• Germany: The 2-Yr yield is down 5.9bps at 3.048%, 5-Yr is down 8.1bps at 2.623%, 10-Yr is down 9.4bps at 2.615%, and 30-Yr is down 7.8bps at 2.714%.
• UK: The 2-Yr yield is down 7.9bps at 5.197%, 5-Yr is down 6.6bps at 4.689%, 10-Yr is down 6.7bps at 4.679%, and 30-Yr is down 5.9bps at 4.873%.
• Italian BTP spread up 0.3bps at 170.8bps / Spanish up 0.5bps at 105.6bps