Bonds: Investors keeping close eye on carnage in US junk bond market

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

US: 2.22% (+10bp)

UK: 1.84% (+3bp)

Germany: 0.57% (+3bp)

France: 0.92% (+6bp)

Italy: 1.64% (+10bp)

Spain: 1.73% (+10bp)

Greece: 8.62% (+1bp)

Portugal: 2.53% (+8bp)

Sovereign bond yields were higher across the board as European Central Bank governor Mario Draghi expressed confidence that further stimulus measures would not be needed, while investors kept a wary eye on what some analysts described as the recent "carnage" in the market for US high-yield debt ahead of Wednesday´s Fed meeting.

Speaking in Bologna ECB president Mario Draghi said “after the re-calibration of our instruments put in place this month by the Governing Council, we expect inflation will reach our objective without undue delay.”

In parallel, in a speech delivered at the Institute of Directors in London, Bank of England deputy governor Minouche Shafik said wage growth in Britain was not yet strong enough to justify hiking interest rates. Nonetheless, she believed markets were not pricing in an interest rate increase in the UK soon enough.

Back in the US, all eyes were again on the market for so-called 'high-yield' debt after London-based Lucidus Capital Partners announced it would liquidate its $900m in holdings under management.

As of 08:31 in New York the Markit CDX North American High Yield Index - a gauge of credit-default swaps - was gaining 17.1 basis points to 539.81 - its highest since November 2012.

On 10 December, Third Avenue Management said it would close its newest $788m high-yield mutual fund due to large withdrawals and a poor performance. It would also delay distributing cash back to investors in order to avoid bigger losses.

The news set off the largest daily loss in US junk bond markets since August 2011.

On 11 December US high-yield energy spreads closed 56 basis points wider at a 1,240 basis points, a record. It was the worst single-day performance for 2015, including a 45 basis point widening seen in August, Deutsche Bank said in a research report sent to clients.

However, poorer liquidity conditions - due to new regulations in place and ahead of the year-end - and pre-Fed 'positioning' were all seen by some observers as contributing factors to the losses.

Commenting on the outlook for markets ahead of the next Fed rate meeting, Deutsche Bank´s Jim Reid said: "Assuming they do hike and that the US HY story doesn't escalate quickly and stop them in their tracks the main story will be how dovish they make the hike. It's hard to think they'll be hawkish given the current global uncertainty and the carnage in the $1.3trn US HY market."