BONDS: EGBs-GILTS CASH CLOSE: Gilts Underperform On Renewed UK Political Risk

EGBs faded early gains Wednesday to finish only slightly stronger, with Gilts underperforming Bunds on a rise in UK political risk premia.

• EGBs and Gilts started off on the front foot, after overnight comments by ECB officials (including Schnabel) and sources pieces pointing to a hold rather than a hike in April, while there was continued cautious optimism over the US-Iran situation.
• But early gains started to sour about 2 hours before the European cash close, after Iranian press reported that tolls to cross the Strait of Hormuz will be payable via Iranian banks.
• Gilts led the next leg of the selloff on speculation that UK PM Starmer could be in the firing line after the Guardian reported the Foreign Office overruled Lord Mandelson's failed security vetting clearance for US ambassador.
• A Times journalist reported after the cash close that the PM was unaware, Gilt (and EGB) futures continued to descend after Bloomberg reported that Gulf and European leaders saw the US requiring 6 months for an Iran deal.
• BOE's Taylor said he didn't support rate hikes (in line with previous comments). UK February GDP data was firmer than expected. Eurozone final March HICP was revised up a little versus the flash.
• The German curve bull steepened with the UK's twist steepening. Periphery/semi-core EGB spreads closed largely unchanged.
• Friday's schedule includes appearances by BOE's Pill and Breeden, with some 2nd-tier Eurozone external accounts data.
  
  Closing Yields / 10-Yr EGB Spreads To Germany
• Germany: The 2-Yr yield is down 2.7bps at 2.517%, 5-Yr is down 1.9bps at 2.697%, 10-Yr is down 1.1bps at 3.032%, and 30-Yr is down 0.9bps at 3.591%.
• UK: The 2-Yr yield is down 0.9bps at 4.22%, 5-Yr is up 0.7bps at 4.344%, 10-Yr is up 3.3bps at 4.847%, and 30-Yr is up 7.4bps at 5.567%.
• Italian BTP spread down 0.1bps at 77.3bps / Spanish down 0.2bps at 45bps