Bonds: Yields on Gilts notch up fresh post-Brexit high

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

US: 1.85% (+5bp)

UK: 1.25% (+10bp)
Germany: 0.17% (+9bp)
France: 0.45% (+8bp)
Spain: 1.20% (+7bp)
Italy: 1.53% (+7bp)
Portugal: 3.28% (+8bp)
Greece: 8.39% (+11bp)
Japan: -0.05% (+1bp)

Yields swept higher across the board with markets apparently mulling how far to take the apparent shift - no matter how measured - in the global monetary policy cycle, although there were still some skeptics out and about.

Ten-year Gilts underperformed, but only by a slight margin in comparison to some of their peers, such as debt from France or Germany, with the honour of worst performer of the session reserved for bonds issued by Athens.

Yields on the benchmark 10-year Gilt did however notch up a post-Brexit high on an intraday basis, at 1.29%.

Of interest, some traders referenced a report from Reuters in the previous session citing officials at the European Central Bank as having said that quantitative easing will be extended past March and the rules around purchases eased, but that it remained to be seen if the exact same pace of monthly purchases would be maintained, as a possible - yet unconvincing factor contributing to the rise in yields.

Back in the UK, incoming economic data continued to impress. Third quarter gross domestic product expanded at a 0.5% quarter-on-quarter pace, according to ONS, soundly beating forecasts for growth of 0.3%.

In parallel, the Confederation of British Industry´s reported retail sales balance for October jumped to +21 from -8 in the month before (consensus: -5.0).

However, following the CBI data Paul Hollingsworth, UK economist at Capital Economics, cautioned that there were still a number of headwinds which lay ahead, including higher unemployment and inflation.

Nonetheless, he did also tell clients that: "with the Chancellor still likely to step off the austerity accelerator pedal in the Autumn Statement next month, and further policy support from the Bank of England still possible, we expect growth in household spending to only slow from about 2.7% in 2016 to about 1.5% in 2017."

Barclays for its part does expect the BoE to cut rates again, but in February 2017 and not next month.

As of 21 October, Barclays did not expect any particular insights [in November] into whether the MPC would support sovereign QE beyond March 2017.

Regarding the more skeptically inclined, Michael Every, Rabobank´s Asia Pacific Head of Financial Markets Research, said to clients: "So, there is a tentative shift towards relative monetary tightening underway, which would prima facie point to higher bond yields and lower equities. There is, of course, also a lot more talk about fiscal stimulus, which would again push longer yields higher. However, talk is cheap, as they say: we haven’t actually seen much of that spending either grinding slowly into motion or being felt in the real economy, except in China. That argues against the recent spike in yields."