EGB/Gilt - Delta Variant Concerns Mount

Concerns about the potential impact of the spreading Delta variant on economic activity has underpinned the rally in sovereign bonds and losses for equities.

• Gilts have rallied with yields 1-4bp lower on the day and the curve bull flattening.
• Bunds have slightly lagged gilts with yields down 1-3bp and the curve 3bp flatter.
• It is a similar story for OATs with the 2s30s spread narrowing 2bp.
• BTPs have had a quieter start and trade near the Friday close.
• Despite concerns about rising infections, the UK government has persevered with its reopening strategy.
• Supply this morning came from Germany (Bubills, EUR5.55bn) and the Netherlands (DTCs, EUR2.49bn).
• There were no significant tier one data releases this morning.
• Focus this week will be on the ECB meeting, which follows the earlier than expected release of the strategy review. Although no material change to the main policy instruments is expected, some adjustment to forward guidance is possible in light of the reformulated inflation objective.