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EGB/Gilt: Digesting French Political Stability & UK National Strike

BOND SUMMARY

European government bonds have traded mixed this morning while regional equities have pushed higher and the dollar has lost ground against most DM currencies.

  • The largest rail strike in 30 years gets underway in the UK, further compounding existing transport and logistical challenges arising from the pandemic. Given that both the RMT union and the government have so far refused to back down, there is a risk of frequent, or rolling, paralysis of public transport at a time when economic growth has faltered.
  • Gilts have sold off and the curve has bear steepened. Cash yields are 2-8bp higher on the day.
  • Christian Jacob, head of Les Republicains, has stated that his party will not join in coalition with President Emmanuel Macron's Ensemble party, which suffered heavy losses at the National Assembly elections last weekend. Although Jacob indicated that Macron had not asked him to enter coalition, his refusal to consider an alliance highlights the difficulties the French president will have in finding parliamentary support.
  • The Elysee Palace earlier confirmed that Prime Minister Elisabeth Borne offered her resignation, but that this was refused by President Macron.
  • The OAT curve has twist steepened with the 2s30s spread widening 3bp.
  • Bunds have lacked clear direction this morning and currently trade marginally below yesterday's closing levels across much of the curve.
  • BTPs have rallied across much of the curve with yields 2-7bp lower on the day, although the very long-end has traded weaker.
  • Supply this morning came from Austria (ATBs, EUR1.378bn allotted) and the ESM (Bills, EUR1.026bn). In addition, syndicated auctions are underway for the 1.125% Oct-73 Gilt, a 25-year Green EU bond

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