Bonds: Hawkish Fed speak pushes yields higher

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

US: 1.69% (+7bp)
UK: 0.78% (+5bp)
Germany: -0.05% (+4bp)
France: 0.27% (+4bp)
Spain: 0.98% (+4bp)
Italy: 1.31% (+4bp)
Portugal: 3.39% (+0bp)
Greece: 8.27% (+0bp)
Japan: -0.07% (+0bp)

Hawkish remarks by two top US central bank officials weighed on bonds, alongside a report that rate-setters at the European Central bank had reached a consensus to taper their quantitative asset purchase programme before ending it.

In remarks prepared for a speech, Richmond Fed president Jeffrey Lacker said that on the basis of past economic relationships the Fed funds rate should be at 1.5% or more.

He was followed in quick succession by his opposite number at the Chicago Fed, Charles Evans, who told reporters Down Under, “I would not be surprised, and if data continue to roll in as they have, I would be fine with increasing the funds rate once by the end of this year.”

Triggering a spate of selling, late in the session Bloomberg cited officials at the ECB according to whom Frankfurt would probably wind down its monthly bond buying before stopping QE altogether.

That followed remarks from two ECB Governing Council members in the previous session, including its chief economist, Peter Praet, regarding the risk that negative interest rates might lead to a reduction in bank lending over time, as a result of lower lenders' lower equity prices.

“When equity prices are low, one year later, you may see impacts on the supply of credit of banks in general,” Praet said.

Finally, the Monetary Policy Committee's newest member, Michael Saunders, sounded an optimistic note on the British economy, telling an audience he did not expect as marked a slowdown as his fellow rate-setters had predicted back in August.