The following were the yield and basis point (bp) movements of some of the most-watched 10-year bonds this afternoon:
US: 2.76% (-4bp)
UK: 2.82% (-3bp)
Germany: 1.73% (-2bp)
France: 2.34% (+1bp)
Spain: 4.14% (-1bp)
Italy: 4.09% (+1bp)
Japan: 0.63% (+2bp)
Portugal: 5.86% (-8bp)
Greece: 8.77% (+3bp)
Sovereign bond yields gave back some ground on Tuesday on what was, generally speaking, a light news day and as the US Federal Reserve carried out two purchases of long-term debt securities under its quantitative easing programme.
In parallel, sources told TheHill.com that a small budget deal remains possible in the US before the committee's official deadline on December 13th, although this week is pivotal. Members of Congress taking part in the negotiations on Monday failed to meet a deadline set by appropriators for a top-line budget number.
That, in turn, means greater odds that Congress will need at least a stop-gap spending bill to keep the government running after January 15th.
Nevertheless, the fact is that the main financial media outlets were inundated on Tuesday with reports of a possible earlier-than-expected start to the US central bank´s tapering of quantitative easing (QE). In that regard, UBS today mentioned the likelihood of a January start to tapering as one of the factors behind its decision to cut its price forecasts for precious metals going forward.
UK bonds moved lower as well despite a much better than expected reading on the construction sector. Here too a smattering of references were seen throughout the day regarding the possibility of rates possibly heading higher towards the end of 2014 (according to current pricing in financial markets) or of unemployment hitting the Bank of England´s 7% threshold by then.
Acting as a backdrop, traders were keeping an eye on the progression of cable in FX markets. Writing in the afternoon Capital Economics wrote to clients telling them that: "[...] since the pound's current level could subdue inflation significantly and impede the economy's rebalancing, the Committee might take action to weaken the pound soon."
Also worth noting, there remain some well-known sceptics on the UK economy. In that regard, the Daily Telegraph cited the following remarks from David Bloom, currency chief at HSBC: "Markets are getting ahead of themselves. We are not yet convinced that this is a self-sustaining, low-inflation recovery. Investment is still 25% below peak and there is still a real wage squeeze going on. We want to see a rise in productivity."
Worth pointing out, the newspaper highlighted how CDSs on British debt are now trading better than those for countries whose debt is still top-notch AAA.
In a related matter, the number of business de-registrations, sometimes referred to as 'deaths', in the UK in 2012 increased by almost 11% to 255,000, according to data out last Wednesday from ONS. Meanwhile, new businesse 'births' also grew, rising by 3.1% to 270,000. More importantly, business births have now exceeded deaths for two years in succession, Capital Economics pointed out. The researcher believes that has positive implications for total factor productivity in the British economy going forward.
For its part, Credit Suisse expects HM Treasury to receive an unexpected boost to tax receipts from stronger growth in 2014.
Portugal's bonds performed well after the nation exchanged €6.6bn of shorter maturity notes for longer-dated debt instruments in a bid to ease its funding needs.
That in turn seems to have lent Spanish bonds a hand.