Bonds: Gilts underperform as Blackrock sounds hawkish note

These were the movements in some of the most widely followed longer-term sovereign bond yields:

US: 2.06% (+2bp)
UK: 1.80% (+3bp)
France: 0.78% (-1bp)
Germany: 0.44% (-1bp)
Italy: 1.41% (-3bp)
Portugal: 2.37% (-10bp)
Japan: 0.29% (-2bp)
Spain: 1.56% (-2bp)

Longer-term Gilts underperformed ahead of the Federal Reserve´s next policy meeting and after BlackRock, the world´s largest money manager, said financial markets had pushed back by far too much the expected date of the start of tightening by the Bank of England.

“A base rate of 0.5 percent looks inconsistently low given the U.K.’s pace of growth and strong labor market,” said Scott Thiel, deputy chief investment officer at BlackRock in a research note sent to clients.

The situation facing rate-setters on the other side of the Pond on Wednesday was similar, but far less stark.

Markets were pricing in a first move by the US Federal Reserve by March 2016 at the earliest, whereas until recently members of the Federal Open Market Committee had apparently been trying to leave the door open for a first 25 basis point hike in the federal funds target rate from its current level of 0-0.25% by as soon as December.

For Bill Hubard, chief economist at Bullion Capital, if the US Federal Reserve was 'boxed-in' by worries about the global economy and the upcoming elections Stateside, as some argued, then it was difficult to understand how it would ever manage to hit its own projections for a Fed funds rate at 3.5% by the end of 2018.

Societe Generale strategist Kit Juckes chipped in saying: “A policy move is really, really unlikely and I wouldn’t hold out much hope of a shift in the policy statement to encourage pricing of a December hike (by, say, removing the reference to international developments in the assessments of risks).”

Acting as a backdrop, according to Betfair Group the odds of the UK exiting the European Union had almost doubled in the past three months to 36% from 18.5%.

In economics news, data from market research group GfK revealed that German consumer sentiment was set to weaken for the third month in a row in November as the migrant crisis takes its toll.

GfK said the forward-looking consumer sentiment index was expected to fall to 9.4 points from 9.6 in October.

Earlier, Sweden’s central bank kept its main policy rate on hold at 0.35% as widely expected, but extended its government bond purchasing programme as it looks to do more to lift inflation to its 2% target.

The Riksbank decided to extend its bond-buying by an additional SEK65bn so that purchases will amount to SEK200bn in total by the end of June 2016.