Bonds: Gilts underperform on speculation around second Scottish referendum

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

US: 2.61% (+3bp)

UK: 1.25% (+2bp)
Germany: 0.47% (-1bp)
France: 1.09% (-2bp)
Italy: 2.36% (0bp)
Spain: 1.91% (+2bp)
Portugal: 4.02% (-4bp)
Greece: 7.21% (+2bp)
Japan: 0.09% (0bp)

Gilts slipped at the start of the week, a move which some market commentary attributed to news that Scotland would ask Westminster for permission to hold a second referendum as soon as the following week.

The yield on the benchmark 10-year Gilt ended at 1.25% versus an intraday low of 1.188%. Two-year Gilts carved out a similar pattern, with their yields finishing at 0.10% and up from an intraday low of 0.06%.

Nicola Sturgeon said Scots had the right to choose between a Hard Brexit and independence.

Be that as it may, there were analysts who believed a Hard Brexit was unlikely.

"The view that a hard Brexit now is inevitable places too much weight on the Government’s cheap talk. Public angst about immigration has fallen sharply, and economic concerns will dominate soon. Electoral arithmetic encourages the Tories to pivot to the centre, rather than poach UKIP voters," Samuel Tombs, chief UK economist at Pantheon Macroeconomics said in a research note sent to clients.

In parallel, ahead of Wednesday's US central bank policy meetings traders in government bonds pushed yields for similarly-dated US Treasuries back towards technical resistance at 2.61%.

Italian bonds outperformed, weighed down by a 2.3% month-on-month drop in the country's industrial production for January (consensus: -2.8%) as factory output in the euro area's third largest economy shrank by 2.8% against December.