Bonds: Strategists and traders wary of timing of next Fed hike

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

US: 1.71% (-2bp)

UK: 1.27% (-1bp)

Germany: 0.05% (-4bp)

Spain: 1.46% (-6bp)

Italy: 1.42% (-5bp)

France: 0.41% (-5bp)

Japan: 0.12% (-1bp)

Greece: 7.47% (+11bp)

Portugal: 3.12% (-8bp)

A clearly more dovish tone from US central bank chair Janet Yellen in her latest speech led traders to reprice the probability of an imminent interest rate hike Stateside.

Nevertheless, while further policy tightening from the Fed come 15 June was now considered to be completely off the table, market participants appeared wary of completely dismissing the possibility of a move in July, especially given the efforts made by US rate-setters over recent weeks to prepare financial markets for just such an outcome.

Gilts were thus higher again on Tuesday, although gains in cable, presumably on the back of two Brexit polls revealing a slight lead for the 'Remain' camp, likely curbed demand.

To take note of, the US Treasury´s auction of $24bn in three-year notes was met with the smallest amount of direct bids since 2009, which some market watchers interpreted as a signal that investors were warier of a Fed rate increase than they were letting on.

As well, during Asian trading hours cable saw a sharp spike in its value which most market commentary put down to a so-called 'fat-finger' trade.

As of 21:26 BST, futures markets were pricing in an 18% probability of a Fed rate rise on 27 July, versus the 55% odds assigned to such a scenario on 2 June.

Nevertheless, there was also wariness among those who thought the Fed might be risking moving 'too fast'.

"Since the Fed started tightening policy in mid-2014, we have seen a massive weakening in financial conditions, primarily impacting non-bank credit markets. Our non-bank liquidity gauge was developed to capture this critical source of credit growth while leading bank lending surveys (SLOS), which it succeeded in doing last year.

"A dovish tilt from the Fed in 2016 improved non-bank liquidity, but it still is 50% tighter than mid-2014. Put simply, there is little margin for error. Current US recession probabilities are 34% according to our latest credit recession gauge; they could reach 50% in 2017 if the Fed veers too hawkish," UBS strategist Stephen Caprio said in a research note sent to clients.

The US Treasury was set to sell an additional $20bn in 10-year notes on Wednesday and a further $12bn of 30-year bonds on Thursday.

In Eurozone news, Eurostat revised its estimate for the rate of growth in first quarter gross domestic product higher, from 0.5% quarter-on-quarter to 0.6%, with the data revealing solid rates of expansion in both consumption and investment.

Yields on the benchmark 10-year Bund hit a record high on an intra-day basis at 0.045%.