Bonds: Yellen flags March rate hike, French political risk unwinds further

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

US: 2.49% (+1bp)

UK: 1.19% (-3bp)
Germany: 0.36% (+4bp)
France: 0.94% (+1bp)
Spain: 1.68% (-2bp)
Italy: 2.10% (-4bp)
Portugal: 3.04% (-1bp)
Greece: 7.05% (+1bp)
Japan: 0.08% (+1bp)

Gilts outperformed on Friday, following a weaker-than-expected reading on the UK's services sector which led some in the markets to reaffirm their calls for a moderate slowdown in the economy in 2017.

IHS Markit's services sector purchasing managers' index slipped from a reading of 54.5 for January to 53.3 for February (consensus: 54.1).

Commenting on that reading, Fabrice Montagne and Andrzej Szczepaniak at Barclays said: "Even though at face value PMIs remain above the 50 mark, they have dipped below their long-term average in the service sectors meaning that businesses are less confident today than on average over the cycle. With worries crystallizing around higher operating costs and possible softening of domestic demand, we believe conditions are in place for further slippages in future months."

Acting as a backdrop, the recent string of 'hawkish' Fed speakers continued, most notably from US central bank chair Janet Yellen herself.

In remarks to the Executives' Club of Chicago, Yellen said "at our meeting later this month (March), the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate."

Those words pushed the market-implied odds of a Fed rate hike on 15 March well past 80.0%, although as of 2032 GMT they were back down at 79.7%, according to the CME's Fed Watch Tool, versus 77.5% during the previous session.

According to Bloomberg data, Fed funds futures were pricing in a 96.0% probability of a 25 basis point interest rate hike on 15 March, up from 40% the week before.

"The process of scaling back accommodation likely will not be as slow as it was during the past couple of years," she added.

Nonetheless, the pace of rate hikes would continue to be "gradual" she also said.

German Bunds underperformed as political risk around France continued to reduce, with one voter poll published earlier in the day showing independent centrist candidate Emmanuel Macron ahead of Le Pen in the first round of the presidential elections scheduled for 27 April.

Support for Macron, the independent centrist contender for the Elysee palace, stood at 27.0%, up by two percentage points, against the 25.5% who backed Le Pen, who had been at 27.0% in the last weekly survey from Odoxa.

The poll was conducted on 1 and 2 March among 951 people.