These were the yields and basis point movements of some of the most watched 10 year bonds just before the close in Europe:

Spain: 6.85% (flat)
Italy: 5.77% (-8bp)
France: 2.2% (+5bp)
Germany: 1.38% (+4bp)
UK: 1.65% (+2bp)
USA: 1.55% (flat)

Sovereign bond investors are focusing on the European Central Bank policy meeting on September 6th, when it's expected ECB President Mario Draghi will announce a bond buying programme to cap borrowing costs for Spain and Italy.

He hinted at the policy in early August, suggesting he would do "whatever it takes" to preserve the euro.

On Monday he was quoted telling European Parliament lawmakers he would be prepared to fund purchases of bonds of up to three years maturity.

In the meantime the economic picture in European appears to be worsening, with London-based Markit Economics revealing its purchasing managers index for the manufacturing sector for August has been revised downwards from 45.3 to 45.1. Any figure below 50 implies the sector is shrinking.

BS

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