Bonds: Gilts higher after snap elections called, US central bank data-dependent

Longer-term Gilts ended a volatile day of trading on the front foot following the Prime Minister's call for snap elections on 8 June.

Initially, the somewhat unexpected announcement saw the yield on the benchmark 10-year Gilt drop to 1.0%, before recovering to 1.06% only to later fall back towards the day's lows after the close of trading in London.

Analysts and traders' reactions to Theresa May's decision, especially abroad, appeared to be positive, with some of the belief that the risk of the UK crashing out of the European Union without a proper transition period, for example, is now less.

Certainly, FX markets appeared to take that view, pushing the pound higher by an outsized 2.23% to 1.2846, near its best levels since October, but still well off the 1.4877 it was at on the eve of the referendum.

Acting as a backdrop, traders returned from the Easter break to find that the race for the French presidential elections had continued to tighten.

With under a week to go until the first round of voting on Sunday, a daily poll from Opinionway showed Far-left candidate Jean Luc Melenchon had nearly closed the gap with third-placed ex-PM Francois Fillon.

Melenchon is now also just three percentage points behind second-placed Marine Le Pen and four away from frontrunner Emanuelle Macron, with all four of main contenders now within the statistical margin of error, such that a second round vote between Le Pen and Melenchon is now possible according to analysts; not the most likely perhaps, but possible.

To take note of, speaking on Monday morning Kansas City Federal Reserve president Esther George signalled her support for the US central bank moving slowly to unwind its enormous balance sheet.

In a separate interview with Bloomberg TV, the usually hawkish George also revealed a rather flexible stance when it comes to continuing to hike interest rates, saying she support the FOMC's strategy of gradual normalisation in 2017.

"Whether that means we'll get four moves, three moves, or no more at all, will be a function of how we see the outlook unfold," she said.

When asked about last Friday's surprise CPI miss for March, George cautioned against reading too much into one data point.

With potential implications for the economic outlook, in remarks to the FT US Treasury Secretary Steve Mnuchin reiterated that setbacks on healthcare meant the White House's tax cut plans were likely to be pushed back a bit.