[MARKET ANALYSIS] Gilts gap lower on return from a Bank Holiday, USTs and Bunds relatively contained

A contained morning for USTs and Bunds given ongoing APAC holidays and after the significant bearish action seen on Monday amid energy upside of as much as USD 6/bbl in Brent.  Gilts, unsurprisingly, lag with downside of 84 ticks at most to an 86.19 base, taking out the 86.36 low from Friday and now looking to the figure and then the 85.90 contract trough. Underperformance is a function of Gilts playing catch-up after Monday's holiday, similar action seen in the FTSE 100. Otherwise, the UK docket is light, and the benchmark will likely conform directionally to peers, and as such may well retrace some of the discussed downside, in a similar fashion to peers late-Monday. For the UK, we continue to count down to Thursday's local elections, the results of which could be the tipping point against PM Starmer, particularly if his own council (Camden) shifts against Labour as the latest polls indicate it might, in a pivot to The Greens. On the leadership, The Times reports that Labour MPs are discussing plans to demand Starmer set a resignation date, in a move akin to that taken by allies of Brown against Blair. USTs are currently a few ticks firmer in 110-05+ to 110-12 parameters, at the lower end of Monday's 110-00+ to 110-26+ band. Ahead, a number of data points of note alongside remarks from Fed's Bowman and Barr. However, there is every chance that action is once again dominated by geopolitics. Bunds are a few ticks lower in a narrow 124.85 to 125.03 band, similarly at the lower end of Monday's 124.68 to 125.51 confines. Specifics for the bloc light thus far, though we do look to a text release from ECB's Lane; however, the topic is focused on the climate, rather than monetary policy.