BONDS: EGBs-GILTS CASH CLOSE: Curves Steepen, Gilts Recover Most Early Losses

UK political uncertainty continued to impact Gilts Monday.

• Gilt yields picked up throughout the morning session, peaking in mid-afternoon before falling back in the couple of hours ahead of the cash close.
• The driving dynamic continued to be uncertainty over UK PM Starmer's future, with some speculation that he could resign in the very near future - which would be considered a fiscally-negative and thus Gilt-negative development.
• Concerns peaked intraday amid reports that the Scottish Labour leader would call for Starmer to step down. Gilts regained ground late as various Labour leaders expressed support for the PM.
• In contrast, Bund yields topped out early and descended thereafter, though trade was well within last week's ranges.
• Banque de France Governor Villeroy announced that he will step down in early June, a year before his term officially ends, though this brought no discernable market reaction.
• Supply from US tech giant Alphabet appeared to weigh on long end instruments, with steepening seen through global markets.
• On the day the German curve twist steepened modestly, with the UK's bear steepening. Periphery/semi-core EGB spreads closed mixed, with BTPs outperforming.
• As we discuss in our Gilt Week Ahead (link), we hear from BOE's Mann after the cash close Monday; global focus for the week is on the latest US employment and inflation reports.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 0.8bps at 2.078%, 5-Yr is down 0.7bps at 2.406%, 10-Yr is down 0.2bps at 2.84%, and 30-Yr is up 1.5bps at 3.527%.
• UK: The 2-Yr yield is up 0.2bps at 3.626%, 5-Yr is up 0.3bps at 3.9%, 10-Yr is up 1.3bps at 4.527%, and 30-Yr is up 1.1bps at 5.346%.
• Italian BTP spread down 1.3bps at 61.1bps / French OAT up 0.5bps at 60.6bps