Gilts Outperform After Labour Landslide

Bonds rally early Friday, although the U.S. NFP release provides plenty of event risk, particularly with Tsy market liquidity set to be impaired by the July 4 weekend.

• Further reduced odds of an RN absolute majority in France and Labour’s strong showing in the UK election seem to be removing some political risk premium from markets.
• Ranges remain contained, TY, Bund, Gilt & OAT futures below this week’s highs.
• Gilt yields are 2-3bp lower across the curve, while German yields are 0.5-1.5bp lower, both curves see light flattening.
• Gilts outperform core global FI peers, while OATs narrow by ~1bp vs. Bunds.
• Light dovish moves seen in EUR & GBP STIRs alongside the rally in the long end, leaving ~40bp of further ECB easing & ~45bp of BoE cuts priced through Dec.
• ECB speak is due from Lagarde, Elderson & Nagel, but shouldn’t be market moving.