Bonds: Gilts underperform as risk-appetite picks up

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

US: Bank holiday

UK: 1.43% (+2bp)

Germany: 0.24% (-2bp)

France: 0.62% (-4bp)

Spain: 1.70% (-4bp)

Italy: 1.60% (-5p)

Portugal: 3.54% (-20bp)

Greece: 11.32% (-20bp)

Japan: 0.09% (-0bp)

Gilts underperformed at the start of the week as US markets remained closed for trading and even as somewhat dovish remarks from European Central bank chief Mario Draghi put a bid into euro area government bonds.

In testimony to the European parliament, Draghi said the ECB would take action should either the drop in commodity prices or the lack of transmission of its policy via banks threaten price stability in the currency block.

Regarding the latter, Draghi said: “in the light of the recent financial turmoil, we will analyze the state of transmission of our monetary impulses by the financial system and in particular by banks.”

The global economic landscape also bore watching, the rate-setter said.

“A continuation of the rebalancing process is needed to secure sustainable growth over the medium term. [This] could imply some headwinds in the short term, which will require close monitoring of the related risks.”

His remarks pressured the single currency lower, while shares of banks got another leg up.

Profit-taking was seen in the likes of Deutsche Bank despite analysts at Moody's telling clients the lender will be able to meet interest payments in its most risky debt - so-called additional Tier 1 notes - in 2016 and 2017.

Italian bank stocks fared particularly well on Monday, despite Draghi's expressly dismissing a report earlier in the day that the European Central Bank was in talks with the Italian government about buying bad loans from the nation’s banks as part of its asset-purchase scheme.

Further afield, Turkish sovereign debt underperformed following the exchange of artillery fire between the country's military and Syrian Kurds over the weekend.

Turkish government 10-year bond yields rose by 11 basis points to end the session at 10.81% and those on two-year debt by another 12 basis points to 10.81%.