Bonds: Yields move higher despite weak data

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

US: 1.56% (-1bp)
UK: 0.64% (+0bp)
Germany: -0.07% (+3bp)
France: 0.18% (+3bp)
Spain: 1.01% (+6bp)
Italy: 1.15% (+4bp)
Portugal: 3.04% (+1bp)
Japan: -0.06% (+1bp)
Greece: 8.10% (+1bp)

Yields were higher for the most part on Wednesday despite the release of weaker than expected economic reports on both sides of the Pond, chiefly MNI´s Chicago manufacturing sector purchasing managers´ index.

The regional US factory gauge retreated from a level of 55.8 in July to 51.1 for August (consensus: 54.0).

Also Stateside, a reading on the National Association of Realtors´s pending home sales index for June was revised lower to show a drop of 0.8% month-on-month, down from an initially estimated gain 0.2%.

However, the most important report of the session, consultancy ADP´s monthly tally of private sector payrolls, revealed that 177,000 jobs (consensus: 175,000) were created in August and the prior month´s print was revised higher as well.

A sale of two-year German government debt saw good demand, with 2.3 times as many bids presented as bonds were on offer.

Greece and Portugal were also in the market on Wednesday.

Lisbon sold €550m-worth of July 2026 bonds at a yield of 3.027%, attracting a bid-to-cover ratio of 1.72 versus 1.49 the last time around.

Inflation data for August came in lower than expected in the euro area.

Year-over-year consumer price inflation was stable compared with July at 0.2%, which was below economists’ expectations of 0.3%, according to a flash estimate by Eurostat.

Core inflation – which strips out energy – was down to 0.8% from 0.9%, below estimates for it to remain unchanged.

On a more positive note, the latest monthly German unemployment and retail sales figures beat forecasts.

Acting as a backdrop, market commentary called attention to early morning speeches from the presidents of the US Federal Reserve banks of Boston, Eric Rosengren, and Chicago, Charles Evans.

"I see good arguments for believing that we are in for a protracted period of low equilibrium real interest rates. I also think many long-term investors are taking this view as well.

"We still need to remain on guard for market vulnerabilities in case this analysis is wrong. But the scenario I’ve outlined today suggests fewer financial stability concerns than if low long-term interest rates were being driven solely by unusual declines in term premia that could leave markets more exposed to sharp swings in risk sentiment or speculative unwinding of carry trades," Evans told his audience at the Shanghai Advanced Institute of Finance.