No Real Bounce, Spill Over From EGBs Keeps the Pressure On

Gilts trade a little above session lows, with EU-election driven pressure for EGBs spilling over early this week.

• A reminder that French snap elections have been called after a particularly poor vote count for President Macron’s party.
• Futures show as low as 96.36, breaking Friday’s low. Bears now eye the June 3 low (96.26), with any break there set to expose key support at the May 29 low (95.33).
• Yields are ~4bp higher across the curve, in a parallel shift.
• SONIA futures are flat to -5.0, just off session lows.
• BoE-dated OIS last shows ~25bp of cuts through the November MPC, although has shown slightly less than full pricing of a 25bp cut over the horizon on several occasions this morning.
• ~32bp of cuts are showing through year end vs. ~33bp at Friday’s close.
• External factors continue to drive the short end, after U.S. NFPs and ECB matters hawkishly impacted pricing late last week.
• Politics and the latest REC report on jobs have provided the domestic areas of interest, see earlier comments for further colour there.
• The BoE will sell GBP800mn of short maturity gilts from its APF holdings later today.
• Tomorrow’s UK labour market report presents the next domestic focal point. Expect our full preview of that release to cross this afternoon.