Bonds: Yields fall back amid risk aversion
These were the movements in the yields of some of the most widely-followed 10-year sovereign bonds:
US: 2.32% (-4bp)
UK: 1.38% (-4bp)
Germany: 0.21% (-4bp)
France:0.77% (-3bp)
Italy: 2.07% (-2bp)
Spain: 1.56% (-1bp)
Greece: 6.98% (+3bp)
Portugal: 3.69% (+0bp)
Japan: 0.02% (-3bp)
Sovereign bonds were lower nearly across the board amid 'market jitters' centering on Italy´s banking sector ahead of the country´s 4 December constitutional referendum.
Selling pressure on Italian lenders was apparently further stoked by a media report cautioning that several Italian lenders might at risk should a 'no' vote prevail, especially should Prime Minister Matteo Renzi step down as he has said he will if his proposals do not obtain sufficient backing, which might lead to renewed political uncertainty and policy paralysis in Rome.
It was against that backdrop that the Monetary Policy Committee´s Marting Vlieghe delivered a speech in which he said it was "uncomfortable" for the Bank of England to tolerate an inflation overshoot.
"Having an inflation projection that is half of a percentage point above the target at the end of the forecast period is uncomfortable for an inflation-targeting MPC.
"The reason we are willing to tolerate this particular inflation path, is that if we tried to bring inflation down faster, with tighter monetary policy, we would create more slack in the economy - lower real income growth, and higher unemployment," Vlieghe explained.
"The tension between the fairly pessimistic assessment [on the economy] by financial markets, the cautious assessment by businesses and the rather optimistic response by households so far, cannot last," Vlieghe said in that same speech.
To take note, in a research report sent to clients analysts at Deutsche Bank said that following strong November euro area PMI figures they only expected the European Central Bank to extend its quantitative easing programme by six months, instead of by between nine to twelve months.