Bonds: Gilts outperform, BoJ moves to cap gains in JGB yields

Gilts outperformed at the end of the week, despite which yields at the 10-year tenor remained nearly 30 basis points above their levels on 27 June, when a speech from European Central Bank chief Mario Drahi sparked selling in fixed income markets across the globe.

A slate of weak UK economic data was the reason behind buying in Gilts on Friday, as ONS reported that UK manufacturing production declined at a 0.2% month-on-month clip in May, versus expectations for growth of 0.8%.

Construction output was also weaker than expected, shrinking by 1.2% on the month (consensus: 0.7%).

The data added to other weaker-than-expected data, leading many analysts to the conclusion that a hike in Bank Rate was not on the cards any time soon.

In the euro area it was a different story, with periphery yields in particular extending their recent moves higher.

That followed better than expected readings on industrial production out of France, Germany and Spain earlier in the session.

Significantly, overnight the Bank of Japan moved to cap the upswing in its government bonds, offering to buy fixed-rate purchases for the first time since February.

Meanwhile, in Germany, bund yields continued to trade near their highest levels since January 2016.

Acting as a backdrop, and weighing on bond prices across the world, according to the Department of Labor US non-farm payrolls expanded at a 222,000 person clip in June, ahead of forecasts for a gain of 177,000.