Bonds: Some analysts surprised by scant reaction in Gilts to Scottish uncertainty
The following were the yield and basis point (bp) movements of some of the most-watched 10-year bonds this afternoon:
US: 2.61% (+6bp)
UK: 2.53% (+3bp)
Germany: 1.08% (+4bp)
France: 1.43% (+3bp)
Spain: 2.35% (+4bp)
Italy: 2.46% (-1bp)
Japan: 0.58% (+1bp)
Portugal: 3.24% (-1bp)
Greece: 5.71% (+9bp)
Sovereign bond yields continued to move higher on Friday in most geographies, following the release of a barrage of 'in-line' to 'better-than-expected' economic data Stateside and ahead of next Wednesday's Fed policy meeting.
Chief amongst the above economic statistics, 'core' US retail sales rose by 0.4% over the month according to the latest figures from the Commerce Department. That was one tenth of a percentage point less than expected by economists at Barclays Research. Nevertheless, upwards revisions to the previous month's readings compensated for the above.
Following those figures the broker's tracking estimates for US GDP growth in the second and third quarters of the year remained unchanged at 4.6% and 2.5%, respectively.
Also worth noting, the University of Michigan's preliminary reading on consumer confidence for the month of September rose to 84.6 from the previos month's reading 82.5 (consensus: 83.3).
Acting as a backdrop, analysts at Danske Bank Markets wrote to clients on Friday evening explaining that: "The FOMC meeting is likely to push forward the timing of the first rate hike. We see a close to 50-50% chance of a change to the forward guidance. Overall, we believe the FOMC meeting will mark a hawkish shift in the Fed's stance."
Indeed, on the same day economists at JP Morgan reportedly moved their forecast for the date of the first interest rate hike on the other side of the Pond up to June.
For his part, coming out of the latest meeting of Eurozone finance ministers the European Central Bank's president, Mario Draghi, was quoted as saying that the "Eurozone recovery will continue at a moderate pace," adding that the ECB stands ready to take further action if needed.
Acting as a backdrop, there were reports that Ukrainian rebels were again making mischief in the east of that country.
Meantime, and in the UK, yields on Gilts continued to move below those on Treasuries.
Despite the most recent polls from ICM and YouGov now giving the 'no' camp in the upcoming Scottish referendum a slight lead, investors would seem to still be adopting a wary stance.
Commenting on the above state of affairs Eric F.Nielsen, Unicredit's global chief economist, told clients that: "I remain amazed that the sell-offs in both gilts and sterling have not been more pronounced. Maybe investors just cannot comprehend the possibility of Scotland actually ejecting themselves into what would surely be utter uncertainty."