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Bonds: Treasuries dip on Fedspeak, European bonds up ahead of vote in Parliament

By Alexander Bueso

Date: Tuesday 15 Jan 2019

Bonds: Treasuries dip on Fedspeak, European bonds up ahead of vote in Parliament

(Sharecast News) - These were the movements in some of the most widely-followed 10-year sovereign bond yields:
US: 2.71% (+1bp)

UK: 1.26% (-4bp)

Germany: 0.21% (-3bp)

France: 0.62% (-2bp)

Italy: 2.87% (+3bp)

Spain: 1.39% (-3bp)

Portugal: 1.66% (-2bp)

Greece: 4.27% (-3bp)

Japan: 0.011% (+0bp)

Longer-dated Gilts appeared to find a bid on Tuesday ahead of the vote in Parliament on the Prime Minister's Brexit plans, putting a lid on yields.

Indeed, the 10-year Gilt outperformed its peers in the developed world.

Nonetheless, despite lawmakers' landslide rejection of the government's plans, which saw over two thirds of the House of Commons vote against Theresa May, considerable uncertainty remained, although by and large analysts appeared to think that the possibility of Britain crashing out of the European Union by accident had decreased as a result - albeit not completely eradicated.

Investor caution was replicated across the Continent, with European capitals also having quite a lot riding on the outcome of Brexit.

Italian bonds were the exception due to the ongoing tensions in the country's banking sector.

US Treasury notes on the other hand were shunned, despite the release of weaker than expected readings on factory gate prices in the States covering the month of December, particularly at the so-called 'core' level, that is to say, excluding food and energy prices.

And the Greenback gained ground, although news of the upset in London tempered its gains.

That was despite dovish sounding remarks from three top US central bank officials, including one of the most hawkish policymakers in their ranks, Kansas City Fed president Esther George - although she kept the door open to further hikes.

In remarks prepared for a speech, George said: "It is possible that some additional rate increases will be appropriate.

"But making that judgement is not urgent and should depend on a careful look at the data and gathering additional insight into where our destination is, how much further we need to go to reach it and how quickly we should get there."

Kaplan was also dovish, although perhaps just a smidgen less so than at the start of the year, when he talked of staying put on rates over the first half of 2018.

On Tuesday, Kaplan had reportedly said: "I don't think we should be prejudging or be predetermined about what we're going to do -- I do think though, for some period of time, and we'll see what that time is, I think it'd be wise to be patient."

He added: "I've said a quarter or two, I don't know -- we'll figure out in hindsight which it is -- but I think it's in the matter of months, not weeks."

Nevertheless, he did note how the Fed might struggle to hit its 2.0% inflation target in the next economic downturn.

Also out with dovish remarks was Minneapolis Fed chief Neel Kashkari.

The day before, in an interview with Fox Business, Fed vice-chairman Richard Clarida had left open the door to less than two rate hikes in 2019.



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