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UK Curve Flattening Picking Up Pace, Gilts / Bunds Bounce Post-US Data

BONDS
Bunds and Gilts have bounced a little after drop to afternoon lows post-US Michigan survey drop. Bunds fell 33 ticks to session lows of 132.65, last flat on the day at 132.83. Gilts dropped a similar magnitude to 94.90 but are regaining some steam and are last up 41 ticks on the day at 95.12.
  • Notably the UK curve has flattened sharply this afternoon, with 2s10s erasing the steepening of the past week, -5.4bp on the day at -77.8bp.
  • That comes as hike pricing for the next BoE meeting in Aug has firmed 2bp (44bp implied) while terminal pricing for March 2024 has ticked up 4.4bp - representing some stability after the post-US CPI drop, perhaps with an eye to UK CPI data looming next week. 122bp of further hikes are priced (to 6.22% at the peak).
Current yields:
  • Germany: The 2-Yr yield is up 4.3bps at 3.195%, 5-Yr is up 3.1bps at 2.596%, 10-Yr is up 1.6bps at 2.501%, and 30-Yr is down 0.4bps at 2.525%.
  • UK: The 2-Yr yield is up 4.7bps at 5.184%, 5-Yr is up 0.1bps at 4.567%, 10-Yr is down 0.9bps at 4.413%, and 30-Yr is down 0.4bps at 4.535%.
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