Bonds: Politics in focus on both sides of the Channel amid rally in US Treasuries

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

US: 3.06% (+0bp)

UK: 1.38% (-3bp)

Germany: 0.37% (+0bp)

France: 0.78% (+2bp)

Spain: 1.65% (+1bp)

Italy: 3.60% (+11bp)

Portugal: 1.99% (+1bp)

Greece: 4.57% (-0bp)

Japan: 0.10% (-0bp)

Gilts outperformed at the start of the week as investors sought safe havens amid the headlines around a possible leadership challenge against the Prime Minister.

Analysts were a tad more sanguine, anticipating that a deal would finally be agreed with Brussels, but said that the ongoing negotiations and jockeying for position among all the players on either side were unlikely to have finished yet.

Indeed, analysts thought it unlikely that the government's proposals would make it through Parliament in the first attempt.

Political risk was also front and centre on the other side of the Channel with investors wary that Brussels might announce the start of an Execessive Deficit Procedure against Rome, on Wednesday.

In Spain meanwhile, local press reports were pointing to the possibility that the minority Socialist government might call early elections, possibly in May 2019.

Across the Pond, all eyes were on New York Federal Reserve chair John Williams, who reportedly said that short-term interest rates in the US remained well below 'neutral'.

Nevertheless, by the end of the session US Treasuries had rallied on both the short and longer end of the interest rate curve.

Stoking the rally in Treasuries, the National Association of Home Builders/Wells Fargo housing market index fell eight points from October to 60, missing expectations for a much smaller drop to 67 although according to the business lobby it remained in positive territory.