Bonds: Central bank prudence irks investors, yields snap higher again

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

US: 1.67% (+7bp)

UK: 0.86% (+10bp)
Germany: 0.01% (+7bp)
France: 0.31% (+8bp)
Spain: 1.08% (+10bp)
Italy: 1.25% (+9bp)
Portugal: 3.16% (+9bp)
Japan: -0.02% (+2bp)
Greece: 8.23% (+4bp)

Investors continued to take profits at the end of the week in the run-up to the next Bank of England and US Federal Reserve policy meetings, following two months of, in many cases, torrid gains in bond prices since the referendum vote.

Bond yields move inversely to their prices.

The immediate trigger for the move higher in yields appeared to be the European Central Bank's unexpected decision, taken during the previous session, to refrain from extending the duration of its asset purchase programme, which left some traders licking their wounds.

Significantly, ECB chief Mario Draghi did say "there is now question about the will to act, the capability to act and the ability to do so", but nevertheless it was not unusual for central bank surprises to be taken poorly by markets.

Indeed, many economists still expected policymakers in Frankfurt to adopt further measures before end-2016.

Similarly, at its upcoming meeting on 15 September the Monetary Policy Committee was widely expected to sit on its hands. However, some economists were now holding out the possibility that it might do so in November as well.

It was against that backdrop that Boston Fed president Eric Rosengren remarked on Friday afternoon that the risks to the US economic outlook were "increasingly two-sided", adding to the selling pressure despite relatively dovish remarks from Fed governor Daniel Tarullo, also on Friday.

After the close of trading in London, Dallas Fed president Robert Kaplan reportedly also said the US central bank had given markets plenty of notice that it was looking for opportunities to remove policy accomodation.

On a related note, earlier on Friday morning Jim Reid at Deutsche Bank had pointed out a late addition to the calendar for Fed speakers for the following week, with the 'dovish' Governor Lael Branard having been added to the line-up for 12 September, which according to the investment bank's analysts might be an attempt to raise expectations for rate hikes, should see sound a more hawkish note than was typical for her.

To take note of perhaps as regards the current phase of the inflation cycle worldwide, data released earlier on Friday revealed that factory gate deflation in China was the least in August since 2012.