[MARKET ANALYSIS] USTs await NFP, Gilts bounce as the UK local elections results continue to filter in

USTs began the European day near-enough flat. Since, as energy wanes a touch, the benchmark has lifted more convincingly into the green. However, the current 110-22 high is someway shy of Thursday's 111-03+ peak. For the US, the day is dominated by NFP, but of course, geopolitics remains in focus and we await an update on yesterday's activity which, according to the US, did not violate the ceasefire. Bunds spent the morning lower by around 20 ticks, as the residual global energy bid, Dutch TTF gains and the potential for elevated US tariffs from July kept yields modestly elevated. However, as above, the magnitude of this has waned across the morning thus far, with around half of that downside trimming, to a 125.72 high. But, as with USTs, still someway shy of Thursday's 126.14 best. Gilts initially opened with losses of 15 ticks and then slipped to a 87.21 low, down by 33 ticks at most but just above Thursday's 87.13 base and by extension comfortably clear of 86.52 and then 85.76 from earlier in the week. Initial pressure in reaction to the late-Thursday geopolitical escalation, and as the UK local elections show a shift from Labour to Reform, alongside marked Conservative losses and a significant but somewhat less-than-expected move toward the Green Party (though, we await key London areas for more data). Note, we still have a lot of the count to go, with key areas reporting from 12:30BST onward; however, the scale of Labour losses is not as bad as feared and will likely provide PM Starmer with some respite. A point which, alongside Starmer confirming he will not resign and intends to lead the UK into the next general election, has allowed Gilts to move into the green and actually outperform peers with gains of nearly 40 ticks to a new WTD high of 87.89. Strength spurred by the market's preference for stability. However, we await the Manchester numbers around 12:30BST which could be a momentum for Burnham to set out his case. Followed by key councils from 16:00BST onward, including Starmer's own Camden council around 18:00BST, in addition to the Senedd and Holyrood. As such, the modest Gilt strength we are seeing and the easing of UK yields may yet prove fleeting in the hours/days/weeks ahead.