Bonds: Gilts underperform as UK factory sector growth keeps accelerating

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

US: 2.28% (-4bp)
UK: 1.09% (+0bp)
Germany: 0.33% (+1bp)
France: 0.82% (-2bp)
Italy: 2.31% (+3bp)
Spain: 1.65% (+1bp)
Portugal: 3.56% (+2bp)
Greece: 5.99% (-35bp)
Japan: 0.02% (+1bp)

Gilts were little changed despite the release of a better than expected reading on the state of Britain's factory sector during the month of April, against a backdrop of weaker than expected figures on Chinese and US manufacturing.

IHS Markit's manufacturing sector purchasing managers' index for the UK shot higher by 3.1 points to 57.3 in April, defying expectations of a fall to 54.0.

Strength in subindices linked to domestic and foreign orders pushed the headline gauge 2.2 standard deviations above its long-term average, economists at Barclays Research pointed out.

Nevertheless, rising inflation pressures and likely weakness ahead in unsecured credit growth may weigh on consumers. So too, competitivity gains may erode with time, alongside increased caution on the part of firms as negotiations with Brussels kick off.

"Against this backdrop, we believe firms’ optimism related to improvement in domestic demand is likely exaggerated while there is only so much they can expect with regard to foreign demand, particularly as many export driven firms are import intensive," Barclays said.

Commenting on the latest round of global manufacturing PMIs, the same broker noted: " [upon closer inspection of the data] manufacturing confidence in the US still remains strong, and hence, the decline in April is not a particular cause for concern. However, the moderation in Chinese PMI does suggest a downside risk to growth."

The ISM's manufacturing sector PMI for April, published the day before, slipped from a print of 57.2 to 54.8, below a consensus forecast for a reading of 56.5.

Meanwhile, on Wednesday Caixin said its China manufacturing sector purchasing managers' index fell from a reading of 51.2 for March to 50.3 in April, its lowest level since last September. Economists had forecast a reading of 51.3.

Longer-term Greek debt rallied after Athens reached a deal with its creditors to release the next tranche of financial aid.