Bonds: Market little changed ahead of ECB

These were the moves in the yields of some of the most widely-followed 10-year sovereign bonds:

US: 2.26% (+1bp)
UK: 1.19% (-2bp)
Germany: 0.54% (-1bp)
France: 0.80% (-2bp)
Spain: 1.56% (+0bp)
Italy: 2.19% (-0bp)
Portugal: 3.07% (+0bp)
Greece: 5.26% (+1bp)
Japan: 0.08% (+0bp)

Developed-world sovereign bond markets were little changed for the most part, as investors waited on policy decisions and announcements from the Bank of Japan and the European Central Bank the next day.

No change in policy was expected from either monetary authority but investors were keen for any hints that the ECB might subtly dial-back on then current guidance for quantitative easing at the September meeting of the Governing Council.

Against that backdrop, a sourced-report from Bloomberg indicated that staff at the ECB were examining alternative scenarios for the future path of the central bank's bond purchase programme.

But the fact that such studies were being carried out did not mean a change in stimulus was imminent, the report said.

No formal discussions about an end to so-called quantitative easing had yet taken place and the same sources told the newswire that officials had "limited" appetite for any significant change in policy.

Nonetheless, traders were on edge, with speculation of imminent changes to the ECB language having contributed to strength in the single currency, together with the Trump administration's setbacks in trying to repeal and replace Obamacare - a potential precondition for fiscal stimulus.

On a related note, analysts at Oxford Economics laid out what the cost to the euro area would be should concerns about Italy exiting the single-currency bloc materialise.

"Italy owes the ECB €430bn, the equivalent of 25% of nominal GDP, and concerns about the country leaving the euro has reignited the debate about so-called Target2 imbalances.

"There is a risk that any member state leaving the single currency would have to settle its account immediately. In the case of Italy, the Eurosystem’s biggest Target2 debtor, our scenario analysis shows that it would ultimately be the Eurozone’s taxpayers footing the bill."