Bonds: Gilts edge back ahead of EU referendum

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

US: 1.69% (-2bp)

UK: 1.31% (+3bp)
Germany: 0.06% (+1bp)
Italy: 1.44% (-1bp)
Spain: 1.50% (+0bp)
France: 0.42% (+1bp)
Portugal: 3.15% (-2bp)
Greece: 7.99% (+9bp)
Japan: -0.14% (+0bp)

Gilts lost some ground in a presumedly 'risk-on' move ahead ahead of the EU referendum scheduled for the next day, even as financial markets honed in on remarks from US central bank chief Janet Yellen regarding the risk posed by low productivity growth and the resulting need for low interest rates to prop-up economic activity.

On Wednesday, Yellen reiterated remarks made in the previous day that “we cannot rule out the possibility expressed by some prominent economists that the slow productivity growth seen in recent years will continue into the future.”

Significantly, after the close of trading the European Central Bank reinstated a waiver on Greek banks' need to present investment-grade collateral in order to access its liquidity facilities.

Frankfurt's decision will allow lenders from the Mediterranean country to pledge Greek government debt - now rated as 'junk' - as collateral for loans from the ECB.

Reflecting the recent increased confidence that Brexit might be avoided, the spread between 10-year Gilts and similarly-dated Italian and Spanish bonds continued to close, with the difference between debt issued by London and Madrid narrowing from 49 basis points on 16 June to 23.

Political “turbulence” in the UK in the aftermath of a hypothetical exit was likely to be “high”, with markets also increasingly focusing on mounting political stresses in Southern Europe, analysts at Credit Suisse said in a research note sent to clients.