Pressure For EGBs Spills Over

The French political uncertainty-driven weakness in EGBs spills into gilts, with futures comfortably through Friday’s lows, showing as low as 96.42.

• This puts the recent bullish rebound at risk. 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 what has been a parallel shift.
• SONIA futures are at/just off lows, last printing flat to 5.5 lower through the blues, with early downtick extending a little as gilts sold off.
• BoE-dated OIS is incrementally more hawkish than pre-gilt open levels, with pricing through the November MPC now showing just under 25bp of easing.
• The KPMG-REC Report on Jobs showed that the labour market continues to soften, although at a slower pace than in April with wage growth remaining sticky.
• Overall, the release offered no real encouragement to BoE MPC members who are contemplating when to enact their first vote to cut rates.
• Elsewhere, political headlines continue to dominate ahead of the release of the Conservative & Labour election manifestos in the coming days. Labour still holds a very wide lead in the polls.
• 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.