Bonds: Gilts drop as more central banks join queue to tighten

Investors continued to push government bond yields higher, especially on this side of the Pond, with longer-term Gilts underperforming versus their peers from among the G-4 economies.

Recent more hawkish remarks from Bank of England governor Mark Carney and Bank chief economist Andrew Haldane also goosed yields on two-year Gilts up by seven basis points to 036% - their highest level since June 2016.

Alongside the BoE, the day before Canadian central bank chief Stephen Poloz reiterated that monetary authority too might be considering rate hikes.

Up until recently only the US and China were tightening monetary policy, but now those two central banks appeared to be entering the fray.

There was also some speculation that the European Central Bank might be turning a colour, although matters were less clear on this matter.

On 27 June, ECB chief seemed to sound a more confident note on the outlook for inflation.

However, the next day his number two, Vitor Constancio, indicated it was a case of "much ado about nothing" and some traders and analysts agreed with him.

Speaking at the ECB forum on central banking Draghi said the factors which were holding down the rate of gain in CPI were "on the whole temporary".

Constancio said the ECB's policy and Draghi's stance were unchanged from the Governing Council's last rate-settng meeting, when it left open the door to bigger asset purchases if needed, although it stopped talking about the possibility of further rate cuts.

Commenting on the situation in markets, Neil Wilson, senior market analyst at ETX Capital said: "As previously noted it's unlikely that the ECB will act quickly or aggressively (Draghi did not sound hawkish, just more comfortable about downside risks) – the market does seem to be overplaying this - but it highlights just how much the market is paying attention to every utterance from the ECB the inflation data."