BONDS: Bearish Technicals Extend, French Political Risks & Energy Prices Weigh

Core global FI markets have sold off this morning, with the continued presence of French political and fiscal risks initially weighing on bonds.

• French PM Bayrou underlined his intention to cut the deficit in a relatively aggressive manner (a tactic that factored into the downfall of the previous government) over the Christmas break.
• Elsewhere, an uptick in energy prices and diminished liquidity will also be factoring in.
• Bearish technical themes develop further.
• Bund futures as low as 132.97 with bears now eying the November 18 low (132.95).
• German yields 4-7bp higher, curve bear steepens.
• EGB spreads to Bunds little changed to 2bp wider, with BTPs leading the widening.
• 10-Year OAT yields above 3.20% for the first time since early November, with the next upside target located at the November 7 high (3.268%).
• 10-Year SPGB/OAT/PGB fly little changed around -45bp, sticking to a 4bp range (based on closing levels) over the last couple of weeks. That compares to cycle closing lows of -55bp.
• Gilts also lower, futures have pierced next support at 91.73.
• UK yields 3.5-7.0bp higher, 5s under the most pressure.
• Early gilt widening vs. Bunds unwound, 10-Year spread last 224bp.
• Lower tier U.S. data (retail inventories and advanced goods trade balance) present the only releases of any note on the data schedule.