BONDS: EGBs-GILTS CASH CLOSE: Weak US Jobs Data Helps Bull Flattening Continue

European curves bull flattened again Friday, with a downside surprise in US employment driving the rally.

• This was the third consecutive day of gains led by the long-end. While the session started constructively, ranges were relatively narrow, with weaker-than-expected German factory orders helping set a bullish tone for Bunds.
• In the UK, retail sales data were firmer-than-expected (but only due to downward revisions, which made for a marginally dovish report overall), but the big news was the resignation of deputy PM Rayner and a broader cabinet reshuffle, raising further uncertainty over the fiscal policy outlook.
• The main event of the day - the US employment report for August - showed weaker-than-expected job gains along with downward revisions and a slightly higher-than-anticipated unemployment rate, boosting Fed cut pricing and extending gains across global core curves.
• Gilts outperformed Bunds on the day. That's also true for the week: UK 2Y yield -3.3bp, 10Y -6.6bp; German 2Y yield -1.1bp, Germany -6.2bp.
• Periphery/semi-core EGB spreads were mixed on the day, with earlier tightening reversing toward the close as equities pulled back.
• Next week's highlights include Monday's expected confidence vote in the French government, and the ECB decision on Thursday.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3.5bps at 1.929%, 5-Yr is down 5.1bps at 2.219%, 10-Yr is down 5.7bps at 2.662%, and 30-Yr is down 4bps at 3.297%.
• UK: The 2-Yr yield is down 3.9bps at 3.91%, 5-Yr is down 6.2bps at 4.048%, 10-Yr is down 7.4bps at 4.646%, and 30-Yr is down 7bps at 5.504%.
• Italian BTP spread down 0.8bps at 84.2bps / French OAT up 1bps at 78.6bps