EGB/Gilt: UK PM Resigns, Political Instability Will Linger

European government bonds have sold off sharply alongside broad gains for equities and G10 FX vs the dollar.

• Following a slew of ministerial resignations yesterday and with some of the prime minister's closes allies urging him to stand down, Boris Johnson has today indicated that he will resign. Cable traded up on the announcement, although gains have been modest.
• While the PMs resignation has eliminated the uncertainty around his premiership, this marks the beginning of a period of prolonged political instability as Conservative party members jostle for the leadership.
• Gilts have traded lower and the curve has bear flattened. Cash yields are up 3-8bp on the day, while the 2s30s spread has narrowed 5bp.
• Bunds have underperformed gilts with yields up 5-11bp and with the short end of the curve leading the way.
• OAT yields have pushed up 4-11bp.
• BTPs have underperformed core EGBs with yields up 11-15bp.
• Supply this morning came from France (OATs/Green OAT, EUR11.998bn) and Spain (Obli/Obli-Ei, EUR5.201bn).