Bonds: Yields edge higher amid Fedspeak, despite weak data

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

US: 1.58% (+2bp)
UK: 0.56% (+2bp)
Germany: -0.07% (+2bp)
France: 0.16% (+2bp)
Italy: 1.13% (+1bp)
Spain: 0.92% (-1bp)
Japan: -0.09% (-2bp)
Greece: 8.06% (+2bp)
Portugal: 2.98% (+1bp)

Longer-terms bonds prices were generally on their backfoot on Thursday, with traders opting for caution due to the 'headline risk' surrounding US Federal Reserve chair Janet Yellen´s speech scheduled for the next session, amid fresh hawkish remarks from some top Fed officials.

For the most part, most market pundits in the City appeared to be skeptical that she would in any manner 'rock the boat' in terms of the expectations for further policy tightening this year.

Acting as a backdrop, over recent sessions Fed funds futures had priced in a slightly greater probability of a 25 basis point move come September, implicitly assigning odds of 56% to such an outcome.

To take note of, in separate interviews given on Thursday Kansas City Fed chief Esther George said that with full employment and rising inflation higher interest rates were justified. Her peer at the Dallas Fed also said on Thursday that the case for a hike had "strengthened", but in an interview with CNBC he refused to be drawn on the timing of the next move.

Nevertheless, the latest and most important data releases published on Thursday were rather underwhelming.

In particular, Markit´s US service sector purchasing managers´ index for August printed at 50.9, down from a reading of 51,4 (consensus: 52.0).

“[...] Slower growth of demand and subdued business optimism also caused employment growth to slow to the weakest for over two years. Price pressures meanwhile remained muted.

“With job creation also waning alongside subdued price pressures, the lacklustre survey results will fuel expectations that the Fed will be in no rush to tighten policy again.," IHS Markit´s Chris Williamson told clients.

The IFO institute´s gauge of German business confidence for the same month also made for interesting reading, dropping from 114.7 to 112.8 (consensus: 108.5), in an apparent delayed reaction to the Brexit vote as sentiment in the country´s automobiles and chemicals sectors took a hit.

"First, some of today’s decrease is likely a delayed effect of the UK’s Brexit decision depressing manufacturing and wholesale trade expectations. Second, the dispute between Germany’s biggest car producer (VW) and some of its suppliers, which has led to a partial production stop, might also have weighed on business sentiment," said UniCredit economist Tobias Ruhl.

Further afield, Bloomberg reported that South Korea´s first-ever sale of a sovereign 50-year bond was drawing interest from around the globe, in part as a result of a change in international accounting rules which had driven cash into the longest maturities.