Off Highs, Gilts Outperform

Bunds and gilts hold onto the bulk of their morning recovery rallies, UK paper outperforms.

• German curve twist flattens, gilts bull flatten.
• Desks have generally pointed to a reassessment of yesterday’s sell off and potential month-end rebalancing flows in some pockets of core global FI as supportive.
• Y/Y headline and core Eurozone CPI data eased, matching wider expectations.
• A 25bp rate cut remains fully priced come the end of the ECB’s September meeting, although an uptick in services CPI saw ECB pricing move to ~64bp of cuts through year end vs. ~67bp early today.
• EGB spreads to Bunds are essentially flat.
• S&P are set to review Portugal’s rating after hours, with an upgrade potentially on the cards given the country’s “Positive” outlook.
• The 10-year PGB/Bund spread trades close to YTD tights.