Bonds: BoA detects shift in MPC policy strategy

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

US: 2.18% (-5bp)

UK: 1.79% (-8bp)

France: 0.87% (-3bp)

Germany: 0.50% (-4bp)

Spain: 1.67% (-2bp)

Italy: 1.48% (-2bp)

Japan: 0.25% (-1bp)

Portugal: 2.52% (+1bp)

Greece: 8.53% (+5bp)

An unexpected move by the People’s Bank of China to weaken the Yuan and the decision by one of the world’s largest brokers to push back its call for the first hike in Bank Rate sent Gilts sharply higher.

On Wednesday, the People's Bank of China set the mid-point for the so-called 'onshore' yuan at 6.5314 per dollar - its lowest since 2011 - which was 0.22% below the previous day's level.

That led to renewed talk that Beijing might opt for the easy way out of its troubles by weakening its currency.

In parallel, Bank of America-Merrill Lynch pushed back its call for the first increase in interest rates from May to November 2016.

The broker referenced the uncertainties surrounding the referendum on EU membership later this year and an apparent change in the Monetary Policy Committee’s strategy.

“In 1H 2015 the BoE seemed to be considering hiking early so they could go very gradually. But recent BoE statements suggest to us an increasing preference for waiting longer, until they get closer to seeing the ‘whites of the eyes of inflation’,” economist Robert Wood said in a research report sent to clients.

Stateside it was still the opposite story.

In an interview with broadcaster CNBC, US Federal Reserve Vice-Chairman Stanley Fischer said market expectations for just two [25 basis point] hikes in 2016 “is too low”.

Four rate hikes, in keeping with the projections submitted by the members of the Federal Open Market Committee at their last meeting, were more “in the ball park”.

In an interview with Belgian weekly Knack, European Central Bank chief economist Peter Praet said he saw no alternative than to keep pursuing the ECB’s current measures, as he conceded that they have not succeeded in boosting Eurozone inflation.

Praet told Knack the monetary authority was ready to take all measures necessary to bring inflation up to the 2% target.

"If you print enough money, you will always get inflation. Always,” he said.

"But if oil and commodities prices tumble, it is more difficult to allow inflation to rise.

"If a whole series of such things happens, then you can only shift the date by which you will achieve higher inflation."