Bonds: US Treasuries, Bunds register poor week as inflation expectations rise

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

US: 1.89% (+3bp)

UK: 1.60% (+1bp)

Germany: 0.23% (-1bp)

France: 0.57% (-0bp)

Spain: 1.60% (-0bp)

Italy: 1.47% (+1bp)

Portugal: 3.29% (+10bp)

Japan: -0.11% (+0bp)

Greece: 8.48% (-31bp)

Yields on ten-year government debt were under pressure across the board on Friday as the benchmark US Treasury note closed out its worst week since November 2015 after jumping by 14 basis points.

German debt of similar maturity mimicked the move, clocking in with the biggest retreat in prices year-to-date, despite weak economic data.

Two-year US Treasuries also gave back some ground, with their yield up by one basis point to 0.82% as traders moved to price-in 63% odds that the Federal Reserve would hike its main policy rate by another 25 basis points by December 2016.

That was up from the roughly even odds seen last week.

The buoyant effect of higher oil prices on global capital markets and many economies filtered into inflation expectations Stateside, were so-called 10-year inflation break-evens, which gained nine basis points to 1.65%. A similar gauge for debt issued by Berlin was at 1.03%, near its year-to-date high of 1.05% according to Bloomberg data.

Adding to the downward pressure on prices, which move inversely to yields, the latest weekly tally from the Commodities Futures Trading Commission revealed that hedge fund managers and other large speculators had reduced their bullish bets on US Treasury bond prices to a net 52,975,000 contracts.

Looking out to the Fed policy meeting on 26-27 April, analysts at Deutsche Bank told clients that “market expectations for the Fed already appear close to maximum ‘dovishness’, with improving US macro momentum, lower financial stress and rising inflation all making it more likely that the Fed will attempt another rate hike over the coming months.”

Greek sovereign debt out performed, with the yield on July 2017 debt issued by Athens dropping by a large 90 basis points to 9.99%.

Investors in Greek debt reacted positively to non-committal remarks from Eurogroup chief Jeroen Dijsselbloem and IMF head Christine Lagarde regarding the possibility that negotiations on alleviating Greece's debt burden might be able to kick-off next Thursday.

Survey compiler Markit's composite manufacturing and services sector purchasing managers' index for the euro dipped from 53.2 in March to 53.0 (consensus: 53.1).

Commenting on the figures, Chris Williamson, chief economist at Markit, said: “A failure of business expectations to revive following the ECB’s announcement of more aggressive stimulus in March is a major disappointment and suggests that the modest pace of growth is unlikely to accelerate in coming months.”

Japanese 10-year JGBs were little changed despite reports that the bank of Japan might in effect begin paying banks to lend to the economy.