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[MARKET ANALYSIS] EGBs and Gilts follow USTs lower

Today’s market action pivots on USTs, with both EGBs and Gilts following suit lower.

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[MARKET ANALYSIS] EGBs and Gilts follow USTs lower

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  • USTs, as discussed, are driving the day's action. 
  • That aside, the morning's stronger-than-expected German Q4 GDP sent Bunds to a 128.07 low with losses of 26 ticks at most. In proximity, we saw the German state CPIs hit ahead of the 13:00GMT mainland figure, the M/M skew was broadly in-line with the mainland consensus, while the Y/Y skew was a hawkish one. For reference, German CPI is expected at 2.0% Y/Y (prev. 1.8%) and 0.0% M/M (prev. 0.0%).
  • Thereafter, the EZ-wide figure hit and was a touch firmer than expected, given the bias from Germany and Italy, shrugging off a soft French reading and a mixed Spanish one. No move to the EZ-wide series.
  • Gilts gapped lower by 26 ticks before slipping further to a 90.59 trough, given the bias from USTs. Since, the benchmark has rebounded a touch and is holding around 90.90, some 10 ticks above opening levels, but still in the red by c. 15 ticks.
Context

The stronger-than-expected German Q4 GDP and a hawkish shift in German CPIs suggest underlying inflation pressures, potentially influencing future rate trajectories in Europe, while Gilts are reacting to broader UST movements amid a mixed Eurozone CPI backdrop. This environment raises questions about risk sentiment and rates across fixed income markets in both the U.S. and Europe.

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