Bonds: Slight gains as European political risks ebb

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

US: 2.32% (-3bp)

UK: 1.43% (-3bp)
France: 0.76% (0bp)
Italy: 2.07% (-2bp)
Spain: 1.61% (+2bp)
Germany: 0.27% (0bp)
Greece: 6.92% (-14bp)
Portugal: 3.71% (-14bp)
Japan: 0.03% (-1bp)

Sovereign bond yields came down almost across the board as market commentary appeared to focus on the positives of the weekend´s political news, with some analysts arguing that political risk in Europe had come down a tad following the result of the French Republican party´s primaries, although some observers were not wholly convinced.

In another political upset, ex-French prime minister Francois Fillon (44.2%) beat Nicolas Sarkozy (21%). Fillon is now set to face another ex-prime minister, Alain Juppe (28.5%), in a second run-off vote on 27 November.

According to a poll from Ipsos published on 20 November, the far-right National Party´s Marine Le Pen would come in eight points ahead of Sarkozy in a hypothetical vite between the two.

"[Le Pen´s] presidential hopes mighthave risen after the US election result, but based on the polls released since the US elections,her chances have not. However, deep divisions among the Left, intensified by former economy minister Emmanuel Macron's presidential bid, may discourage left-wing voters from voting.

"This could conceivably give an advantage to Le Pen. Moreover,a rejection of the Italian referendum and a far-right victory in the Austrian presidential elections on December 4 could add momentum to anti-establishment parties," analysts at Morgan Stanley said.

Prime Minister May´s hint that she might back negotiating a transition period for the UK when it leaves the European Union may also have helped to soothe some nerves on this side of the Channel.

Nonetheless, trading volumes were light ahead of the Thanksgiving Day holiday in the States and gains in bond prices came after a week that saw Italian yields climb to one-and-a-half year highs.

Central bankers were also to be seen out and about, with markets taking note of Fed Vice Chairman Stanley´s Fischer´s remarks that certain kinds of fiscal stimulus geared towards boosting the rate of growth of productivity in the States would be helpful.

Later in the session, in remarks to the European Parliament European Central Bank chief Mario Draghi reiterated the monetary authority´s commitment to maintaining "the very substantial degree of monetary accommodation, which is necessary to secure a sustained convergence of inflation towards level below, but close to, 2% over the medium-term."

Earlier in the day Benoit Coeure, an ECB Governing Council member also called for structural reforms and "where available, fiscal policies at national and European level".

Worth pointing out, in his opinion the 'doom loop' between banking and sovereign risk had yet to be broken.

"Agreement on a European deposit insurance scheme is not within sight and the Single Resolution Fund still lacks a common financial backstop," he observed, according to Market News International.

Acting as a backdrop, speaking at a conference in Frankfurt on 18 November, Deutsche Bank chief John Cryan reportedly said the regulations which the banking sector was facing globally only benefitted the US.