Bonds: US energy bonds under pressure, JGBs retreat

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

US: 1.52% (+0bp)

UK: 0.71% (-3bp)

Germany: -0.09% (-1bp)

France: 0.13% (-1bp)

Spain: 1.9% (-1bp)

Italy: 1.20% (-1bp)

Greece: 8.06% (-1bp)

Portugal: 2.97% (-3bp)

Japan: -0.27% (+3bp)

Gilts outperformed on Thursday as traders positioned for another round of stimulus from the Old Lady on Threadneedle Street, which sent yields to a fresh record low on an intraday basis.

Economists at Bank of America-Merrill Lynch told clients to expect a 25 basis point reduction in Bank Rate, on top of another 50bn pounds of quantitative easing and a rebooting of the Bank of England´s Funding for Lending scheme.

US Treasuries on the other hand were little changed despite a fair bit of market commentary interpreting the Federal Reserve´s latest policy statement, published overnight, as ‘upbeat’.

Following their deliberations, US rate-setters kept policy steady (as expected), later issuing a statement in which they took note of the recent strengthening seen in the labour market – after weakness in May – and the moderate pace of expansion in the economy.

Nonetheless, they also indicated that investment had been soft and market-based measures of inflation expectations remained low.

Japanese government bonds were the clear laggard, with yields on JGBs moving higher as markets prepared for the next day´s policy announcement from the Bank of Japan amid widespread speculation, until just a few days ago, of further significant monetary stimulus.

In its place, there was some market chatter to be seen regarding the possibility that Tokyo was set to unveil fiscal stimulus measures the next week.

Acting as a backdrop, the US dollar index was down by 0.5% to 96.61 and West Texas crude oil futures continued to retreat.

To take note of, high-yield energy bonds in the States declined for an eighth consecutive day, albeit after a five-month rally which had taken their year-to-date gains to 24%.