Bonds: Slight risk-off bid in Gilts ahead of US Fed and BoJ meetings

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

US: 1.57% (+0bp)

UK: 0.82% (+1bp)
Germany: -0.03% (+1bp)
Spain: 1.11% (+0bp)
Italy: 1.24% (+1bp)
France: 0.19% (+0bp)
Japan: -0.25% (-1bp)
Portugal: 3.04% (+1bp)
Greece: 8.10% (+1bp)

Longer-term sovereign bond yields remained stuck in tight ranges on Tuesday, ahead of the US central bank´s rate-setting meeting the next day and the gathering of rate-setters in Tokyo scheduled for the following Friday.

Against that backdrop, fixed-income investors barely reacted to comments overnight (in FX markets it was a very different situation) from Japanese finance minister Taro Aso which undercut expectations among some observers that the Bank of Japan was set to announce a significant stimulus package.

Likewise, the size of the much speculated upon fiscal measures to prop up Asia´s second largest economy had yet to be decided upon, Aso said.

In parallel, the decision by the Monetary Policy Committee´s own Martin Weale to row back on his suggestion that the Bank of England should maintain a 'wait and see' attitude before possibly loosening policy again provoked little apparent reaction in longer-term Gilts.

In remarks to the FT, Weale pointed to the previous Friday´s very weak UK PMI readings, saying: “they are the best short-term indicator we have at the moment. I certainly feel they are very material for the decision we’ll be taking next week.”

"[They were] a lot worse than I had thought” and showed “expectations have worsened sharply”.

Tuesday was light in terms of economic data, outside of the US that is.

The raft of US data was generally stronger-than-expected by economists, yet with one key exception, the session´s most eagerly awaited number, survey compiler Markit´s service sector purchasing managers´ index for July.

Activity in the largest sector of the American economy dropped back to a five-month low, with the headline PMI printing at 50.9, down from a reading of 51.9 for the month before (consensus: 52.0).

Commenting on the flash PMI data, Andrew Harker, Senior Economist at Markit said: “The U.S. service sector remained stuck in a low gear at the start of the third quarter of 2016, with growth of activity remaining subdued amid a slower rise in new business. This is particularly disappointing given the decent numbers posted by the manufacturing sector last week.

“A bit more encouraging was the rebound in business confidence following June’s survey low, suggesting that a return to stronger growth will be possible once the current soft patch comes to an end. Whether this will be before the presidential election or not remains to be seen, however.”