Bonds: Yields drop across the board amid pick-up in risk aversion

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

US: 2.35% (-4bp)

UK: 1.21% (-8bp)
Germany: 0.30% (-5bp)
France: 1.01% (-11bp)
Spain: 1.70% (-8bp)
Italy: 2.25% (-12bp)
Portugal: 4.12% (-13bp)
Greece: 7.73% (-10bp)
Japan: 0.105 (-1bp)

Government bond yields were lower across the board in a day that was largely devoid of any market-moving economic data although risk aversion was still evident.

To take note of, against that backdrop and speaking to Bloomberg TV early on Wednesday, Steven Major, head of fixed income research at HSBC, debunked the myth that fiscal loosening drives bond yields higher.

US 10-year Treasury yields would end 2017 at 1.35% he forecast, echoing the contents of a research report published five days earlier, while those on similarly-dated Bunds would see the year out from 0.35%, albeit after a rise to 0.6% in the third quarter.

Gilts put in a solid performance, with prices bolstered by solid demand at the BoE's reverse auction for £775.0m of Gilts maturing in between seven to 15 years.

The auction drew a bid-to-cover ratio of 4.07 versus 3.57 the last time around.

On a somewhat sombre note, in remarks prepared for a speech the MPC's Jon Cunliffe told an audience that lingering risk aversion linked to the Great Financial Crisis was a plausible explanation for the underinvestment to be seen in the UK since, which might yet extend for a matter of time.

Acting as a backdrop, worries that financial tensions linked to Greece might flare again in the summer of 2017 were still evident.

Yields on the benchmark two-year Greek government bond retreated 12 basis points to 9.36% on Wednesday, after climbing sharply higher in recent weeks and in the preceding session, but remained well above the 7.44% mark at which they started the year.

After the close of trading on Tuesday the IMF warned that Greece's debts were still unsustainable.

Meanwhile, in Japan, some market commentators called attention to the summary of opinions for the Bank of Japan's last policy meeting, which noted the challenges posed by trying to maintain control of the yield curve.

Further afield, rate-setters at the Reserve Bank of India surprised markets by keeping rates unchanged at 6.25%.