European Fixed Income Update: EGB Yields Move Broadly Higher

European government bond yields moved broadly higher Tuesday, with Gilts leading the way and the 10-year gaining 5.4 basis points to 1.38%, wiping out Monday’s losses and resuming the uptrend as the Bank of England heads for a rate hike.

The 10-year Bund gained 3.7 bp in quiet trade, as Germany celebrates Unity Day and local stock markets are closed.

Eurozone peripherals, which sold off Monday are outperforming Tuesday, and the Portuguese 10-year is down 0.7 bp, although the Spanish 10-year added another 1.0 bp Tuesday as the Catalonia conflict continues to weigh on sentiment and street protests add to warnings from Moody’s that the situation is negative for Spain’s rating even if the most likely outcome still is that Spain will remain united.

Eurozone producer price index inflation came in higher than expected and added to pressure on bonds, while the sharp dip in the U.K. Construction purchasing managers index failed to give Gilts a lift.

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