Bonds: Weak US services data rekindles global bond rally

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

US: 1.54% (-7bp)

UK: 0.66% (-6bp)
Germany: -0.11% (-6bp)
France: 0.17% (-7bp)
Spain: 0.93% (-8bp)
Italy: 1.09% (-7bp)
Greece: 8.23% (+10bp)
Portugal: 2.995 (-6bp)
Japan: -0.18% (+2bp)

The global rally in longer-term sovereign bonds appeared to get a new lease on life on Tuesday after what was arguably the most keenly-awaited data point of the week, the US ISM´s service sector gauge for August, came in surprisingly on the 'bullish' side of things.

Acting as a backdrop, traders were gearing up for Bank of England governor Mark Carney´s testimony before the Treasury Select Committee.

IHS Markit´s UK service sector purchasing managers´ index released on 5 September blew past forecasts, leading some traders to expect Dr.Carney to face a grilling for the BoE´s 'sledge-hammer' approach to stimulus following the Brexit referendum.

Ironically, for some economists such actions had been very much a factor in helping to prop up confidence in the months after the vote.

Of interest in that regard, on Tuesday economists at Morgan Stanley lifted their forecasts for the UK GDP growth in 2016 from an annual rate of 1.2% 1.9% and for the the third quarter of 2016 from -0.4% quarter-on-quarter to 0.3%.

That meant the UK was now expected to dodge a technical recession, although the broker still expected the BoE to carry-out another tranche of quantitative easing arrive February 2017.

The other key question on investors´ minds, looking out to the European Central Bank´s policy meeting on Thursday, was whether rate-setters in Frankfurt would announce further measures, or not.

In recent days economists from several top firms, including Barclays, Morgan Stanley or PIMCO had aired their dounts, at least as the next meeting was concerned.

For Andrew Bosomworth, PIMCO’s head of portfolio management in Germany, the ECb would wait until December.

Nonetheless, when it did move Bosomworth did expect that the Governing Council would relax the capital key allocation for government bonds - contrary to some other analysts´ predictions.

"Large countries – France, Italy and Spain – should be the major beneficiaries of tapering Bunds. While relaxing the capital key will be controversial in some quarters, we think relaxing the other criteria are even more controversial."

Over in the corprate bond space, Henkel AG and Sanofi were poised to became the first non-financial firms to issue debt yielding less than 0%, Bloomberg reported - thus in effect gettig paid to borrow.

Meanhile, in Greece, a poll carried out by researchers from the University of Macedonia during the first week of September revealed that 90% of voters were disappointed with the government of Alexis Tsipras, according to The Times.