Bonds: French bonds jump, periphery bonds wanted

These were the movements in some of the most widley-followed 10-year sovereign bond yields:

US: 2.28% (+3bp)
UK: 1.05% (+2bp)
Germany: 0.33% (+8bp)
France: 0.83% (-11bp)
Spain: 1.61% (-9bp)
Italy: 2.18% (-8bp)
Portugal: 3.56% (-19bp)
Greece: 6.45% (-19bp)
Japan: 0.02% (+1bp)

Longer-term Gilts underperformed at the start of the week after French centrist presidential candidate Emmanuel Macron's win at the weekend sapped them of a little of their strength.

Nonetheless, they fared better than similarly-dated German and US government bonds.

Monday, of course, was all about France, with investors also possibly gaining an insight into the extent of the political risk premium which had been built-in ahead of the vote (and with Italian elections still possibly on the horizon in 2017 too).

Macron came away with 24.0% of the vote, versus 21.3% for far-right candidate Marine Le Pen, 20.0% for centre-right ex-PM Francois Fillon, 19.6% for the far-left candidate, Jean Luc Melenchon, and 6.4% for Socialist leader Benoit Hamon.

Nevertheless, and despite the day's sharp gains for most euro area government bonds, analysts at Rabobank were cautious, warning clients of the risk of unexpected developments, such as unforeseen scandals which might emerge involving either Macron or Le Pen.

Hence, rather than the polls all eyes may now turn each Wednesday to the front page of Le Canard Enchaine, the weekly satirical which has proven the bane of more than one high-ranking official in the Elysse over the last few decades, including Fillon.

Further commenting on the potential implications of Sunday's first-round of voting, Rabobank cautioned: "Secondly, scandals surrounding either candidate could emerge. Especially Macron’s support is untested on this front. Finally, the polls of the second round this year have the potential of being less informative as it carries the potential to be more surprising than the first round due to lower turnout.

"As such, financial markets may welcome his election. But the fact that, as an independent, he is very unlikely to achieve a majority in the French parliament after June’s elections means France’s structural problems and economic setbacks will not be resolved any time soon."

Greek bonds were wanted too, especially at the short-end, with the yield on the two-year note 74 basis points lower at 6.68% as the European Commission confirmed the country ran a primary government surprlus worth 4.2% of GDP in 2016.