U.K. Gilt Yields Rise as French Election Sparks Risk Rally

  • Macron’s advance into second round boosts risk-on mentality
  • Gilts follow sell-off of core European government bonds

CMC's Spooner Says Markets Will Assume a Macron Win

U.K. 10-year gilt yields rose the most since January as centrist Emmanuel Macron and nationalist Marine Le Pen’s progressed into the second round of France’s Presidential election, boosting the chances of a market-friendly outcome.

Yields on the 10-year government bond rose eight basis points, following a selloff in bunds and Treasuries. The result avoided a run-off between Le Pen and Communist-backed Jean-Luc Melenchon and leaves Macron as the firm favorite in the next stage of voting in two weeks time. U.K. markets may also be driven this week by reports on public finances and first quarter growth.

“The French election played out as people expected and the risk of a much more turbulent outcome of a Le Pen-Melenchon run-off is not going to happen now,” said John Wraith, head of U.K. macro rates and strategy at UBS in London. It “has seen an unwind in the safe-haven bid that understandably dominated in the back-end of last week.”

  • Yield on 10-year gilts climbs 8bps to 1.12%, the highest level since February
  • GBP/USD was little changed at 1.2824, after reaching 1.2905 last week, the highest since October, after Theresa May called a snap election
    • Resistance at 1.2870, Asia high and 1.2905, April 18 high
  • Standard Bank has its two-year GBP/USD forecast at $1.63, though “sterling’s recovery could be waylaid by much slower growth” following poor retail sales data last week, writes Steve Barrow, the firm’s head of G10 strategy, wrote in a note to clients
  • EUR/GBP jumps 1.1% to 0.8469, having earlier climbed 1.6% -- the most since October last year
    • Resistance at 0.8511, 21-DMA, and 0.8525, 233-DMA,
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