Bonds: Gilts snap losing streak as Treasuries play catch-up

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

US: 1.76% (+4bp)

UK: 0.98% (-4bp)
Germany: 0.03% (-3bp)
France: 0.32% (-3bp)
Spain: 1.02% (-1bp)
Italy: 1.38% (-2bp)
Portugal: 3.37% (-7bp)
Greece: 8.27% (-1bp)
Japan: -0.05% (+1bp)

Remarks from the Monetary Policy Committee's newest recruit, Michael Saunders, helped longer-term Gilts outperform and recover part of the previous days' losses.

In testimony to the Treasury Select Committee, Saunders said the Bank of England could afford to "look through" the impact of a weaker pound on inflation even if it was a drawn-out process.

Despite five year-five year UK inflation breakevens breaking out to 3.570% - their widest since 2014 - analysts at Deutsche Bank appeared to concur with the BoE rate-setter, judging the chances of a material shift in policy to be limited.

"Firstly a tighter monetary policy stance based on expectations of easier fiscal policy and structurally higher inflation due to tariffs and shrinking labor force growth would be politically pre-emptive. Secondly, it would be counterproductive as a tightening in monetary conditions would amplify any shock caused by the triggering of Article 50 in March," they said.

Furthermore, on a fundamental equilibrium exchange rate basis (or sustainable current account basis) Sterling was still close to 10% overvalued, they said.

The BoE's reverse auction of Gilts maturing in more than 15 years drew a cover ratio of 3.49 (previous: 3.26).

For some traders, recent auction results had, perhaps unsurprisingly, proved rather popular with investors.

Benchmark 10-year US Treasury note yields jumped in their first day of trading following the Columbus Day holiday, with Fed funds futures again left pricing in a roughly 70% chance of a 25 basis point rate hike come the 14 December Fed policy meeting.

Some market commentary attributed the rise to remarks from US Chicago Fed president Charles Evans to the effect that one more rate hike in the near future was nothing to "write home about".

Nevertheless, Evans also indicated he would prefer to wait a bit longer.

On a slightly more hawkish note perhaps, in remarks made over the weekend Fed vice chairman Stanley Fischer said the decision not to raise rates in September had been "close".

However, Fischer saw little risk of "falling behind the curve".