Bonds: Central banks looking to the medium-term

Bond markets were little changed on Thursday despite more hawkish than usual remarks from one of the US central bank's, the Federal Reserve, rate-setters this year.

Speaking at the Federal Reserve bank of NY, its president, William Dudley, said it was reasonable to expect another interest rate hike in either June or July if the economy performed in line with his forecasts.

"[...] I am actually quite pleased to see that that probability [of a Fed hike] has in fact moved up.”

Yields on developed-world long-term government bonds jumped in the previous session after the minutes of the Fed's late-April meeting revealed that "most" members (including those members of the FOMC without a vote) believed a June rate hike would be appropriate if the economy was meeting their expectations.

Nonetheless, among the FOMC's voting members their desire was rather "to keep their options open".

In recent speeches Dudley had said two rate hikes in 2016 was a reasonable expectation, but did not expressly reference the 15 June meeting.

Reacting to his remarks the yield on the benchmark 10-year US Treasury note was roughly unchanged at 1.85% by the closing bell on Wall Street.

In parallel, the yield on two-year government debt was off by one basis point to 0.88%.

Yields on 10-year Gilts were unchanged too.

To take note, speaking at the London Business School the Monetary Policy Committee's Gertjan Vlieghe said additional monetary stimulus might be justified should the UK's economy not bounce back after the 23 June referendum on membership of the European Union.

Vlieghe pointed to varios secular factors which had bearing down on the rate of growth of the economy over the last few years.

"If such improvement is not apparent soon, this will reduce my confidence that inflation is likely to return to the target within an acceptable time horizon without additional monetary stimulus," Vlieghe said.

"The loss of UK growth momentum and absence of a meaningful pick-up in inflationary pressures has been a rather gradual process over the past few years, but, cumulatively, it adds up to a significant downward revision ... to which monetary policy has not responded so far."

Not coincidentally perhaps, in an interview with Bloomberg Finnish central bank governor Erkki Liikanen appeared to indicate the euro are's monetary authority might be justified in exceeding its inflation goal for a while, what economists call 'over-shooting' the inflation target.

For his part, Fed Vice chair Stanley Fischer, who also delivered a speech on Thursday, highlighted the need for fiscal policies, including on taxes and infrastructure, to raise the US economy's potential rate of economic growth.

Yields on German 10-year bunds fell back after hitting a two-week high earlier in the session, ending the day nearly unchanged at 0.17%, down from an intra-day high of 0.21%.