BONDS: EGBs-GILTS CASH CLOSE: "On Hold" ECB Drives German Bear Flattening

EGBs underperformed global counterparts Thursday after a more hawkish-than-expected communication from the ECB meeting.

• Along with the fully expected rate hold, President Lagarde didn't do much to encourage expectations of further rate cuts. She said "you could argue that we are on hold" and that the ECB is "in a good place now to hold" pending incoming data and developments.
• The usual Bloomberg/Reuters ECB sources reports after the meeting pointed to a high bar for a September cut.
• Solid US jobless claims data also weighed, with Treasury weakness spilling over.
• In European data, flash Eurozone PMI data was a little better than expected, with manufacturing in line and services above-consensus, while UK PMI data was mixed (manufacturing beat slightly, but services missed).
• The hawkish repricing of near-term ECB policy resulted in the German curve bear flattening sharply, with UK yields lower across the curve but the short- and long-end outperforming.
• Periphery EGBs underperformed, with10Y Italian and Greek spreads to Bunds rising 2-3bp.
• Friday's schedule includes UK retail sales and the German IFO survey.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 8.8bps at 1.932%, 5-Yr is up 8.7bps at 2.281%, 10-Yr is up 6.3bps at 2.702%, and 30-Yr is up 1.9bps at 3.192%.
• UK: The 2-Yr yield is down 1.9bps at 3.862%, 5-Yr is down 1.2bps at 4.032%, 10-Yr is down 1.3bps at 4.622%, and 30-Yr is down 2.2bps at 5.46%.
• Italian BTP spread up 2.5bps at 84.8bps / French OAT up 0.3bps at 67bps