Bonds: Fed's Mester pushes for November rate hike

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

US: 1.62% (+3bp)
UK: 0.73% (-2bp)
Germany: -0.09% (-3bp)
France: 0.23% (+4bp)
Spain: 0.94% (+6bp)
Italy: 1.27% (+8bp)
Portugal: -0.07% (+2bp)
Greece: 8.27% (-1bp)
Japan: -0.07% (+2bp)

Longer-dated Gilts outperformed on Monday after the Prime Minister set the date for the start of formal negotiations to leave the European Union, sending the pound spiraling lower and thus delivering a boost to the value of sterling assets in nominal terms.

In parallel, similarly-dated US Treasury notes were on the back-foot following the release of better-than-expected manufacturing survey data in the States.

The Institute for Supply Management's manufacturing sector purchasing managers' index for the month of September jumped back from a reading of 49.4 in August to 51.5 for September (consensus: 50.2).

"Overall, this morning’s report supports our view that the early-year decline in manufacturing is likely complete. We expect manufacturing largely to move sideways this year, but today’s data, combined with solid orders and exports reported last week, point to some upside risk to the manufacturing outlook," Barclays Research's Rob Martin said in a research report sent to clients.

Also worth noting, after the close of trading in US markets Cleveland Fed president Loretta Mester - one of the most vocal policy 'hawks' - heavily suggested she would back an interest rate hike by the Fed as soon as November.

Speaking to Bloomberg Radio, Mester said the case for a rate hike would "remain compelling" to back a rate hike at the next policy meeting, on 2 November, if the economic data came in largely as she expects.

By the close of trading, Fed funds futures were assigning a 61.7% probability to a 25 basis point interest rate hike by the Fed at its 14 December meeting.

Out in the euro area periphery, the spread between Italian and Spanish bonds continued to widen after a poll showed the result of the upcoming referendum in Italy was too close to call.