Bonds: Fedspeak pushes Gilts lower, Spanish bonds outperform

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

US: 1.58% (+2bp)

UK: 0.59% (+5bp)
Germany: -0.03% (+4bp)
France: 0.195% (+5bp)
Italy: 1.117% (+6bp)
Spain: 0.981% (+4bp)
Japan: -0.09% (+0bp)
Portugal: 2.84% (+15bp)
Greece: 8.15% (+1bp)

Gilts were dragged lower along with a wave of selling across the asset class after a top US rate-setter cautioned that an interest rate increase was "possible" come the September meeting of the US Federal Open Market Committee.

In remarks to brocadcaster Fox, the president of the Federal Reserve Bank of New York, William Dudley, also said that markets were getting complacent.

Later in the day, the president of the Federal Reserve bank of Atlanta, James Lockhart, said that if incoming data continued to confirm his outlook for "moderate growth" in 2017, then at least one more hike might lie ahead.

"I'm not locked in to any policy position at this stage, but if my confidence in the economy proves to be justified, I think at least one increase of the policy rate could be appropriate later this year," Lockhart said in remarks prepared for a speech and posted to the regional Fed bank's website.

That saw yields on longer-dated Gilts jump, with the yield on the benchmark 30-year Gilt up six basis points to 1.32% by the close of trading in London.

Just moments afterwards, the Bank of England announced that its latest reverse long-dated Gilt auction was well-subscribed, obtaining £3.123bn of offers versus the £1.170bn accepted, resulting in a cover ratio of 2.67.

Acting as a backdrop, ONS reported consumer prices rose by at a quicker-than-expected pace of 0.6% year-on-year in July (consensus: 0.5%).

Ahead lay unemployment claims and job vacancies data for July, which were due to be released on the next day, the first such set of figures from after the referendum vote.

The latter, in particular, might provide a timely steer on the odds of the British economy moving into a recession, said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"[...] vacancies were 10K lower in the three months to June than in the previous three months. On the basis of past form, three-month-on-three-month declines in vacancies of more than 20K would signal recession," Tombs said in a research note sent to clients.

Meanwhile, in the euro area it was Spanish debt which outperformed, with some market commentary referencing nascent signs that the political gridlock in Madrid might yet be resolved.