Bonds: Gilts outperform amid US political uncertainty

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

US: 1.79% (-3bp)

UK: 1.13% (-7bp)
Germany: 0.14% (-2bp)
France: 0.46% (-1bp)
Italy: 1.75% (+6bp)
Spain: 1.29% (+4bp)
Portugal: 3.29% (+4bp)
Greece: 7.76% (-3bp)
Japan: -0.06% (+0bp)

Gilts outperformed by a wide margin as traders pulled in their horns ahead of the weekend and the 8 November US presidential elections.

Capturing the mood, UBS senior independent economic adviser George Magnus told Bloomberg TV, "it does all feel very Brexit-y [ ... ]The U.S. election is quite different [in comparison to that in the UK] because you're looking at a political regime-change."

"We could see a material repricing of bond markets."

Magnus argued that the Republican party Donald Trump's fiscal spending plans looked set to widen the public deficit by more than those of his main adversary, Hillary Clinton.

The swing in sentiment followed a notable narrowing in the results between the two main US presidential candidates over the past week in tracking polls, possibly after news broker that the Federal Bureau of Investigation was to reopen a probe into the use of unauthorised email servers by ex-Secretary of State Clinton.

In any event, strategists at Citi believed the elections were like to leave behind a more divided country.

Against that backdrop, a more-or-less "as expected" US jobs report for the month of October appeared to pass-by relatively unnoticed.

Government bond and Treasury funds saw their first weekly inflow in 17 weeks over the seven days ending on 2 November, according to data from Bank of America-Merrill Lynch and EPFR.

In parallel, inflows into funds invested in Treasury Inflation Protected Securities saw $1.4bn of inflows, for a 21st consecutive week of inflows and the largest since April 2015.

Equities on the other hand saw $3.8bn of outflows while ETFs took in $1.3bn and commodities another $1.4bn.

As of 1853 GMT US Fed funds futures were pricing in a 71.5% probability of a 25 basis point interest rate hike when the Fed next met on 14 December, the same as the day before.

Eurozone periphery bonds fell back amid the rising risk aversion, albeit with debt issed by Athens an exception - indeed, its 10-year bonds saw their largest weekly gain since July.