Bonds: Dovish Fedspeak, ECB speakers acknowledge costs of negative rates

These were the movements in some of the most widely-followed 10-year sovereign bond yields:

US: 1.62% (0bp)

UK: 0.73% (+2bp)
Germany: -0.08% (+1bp)
France: 0.22% (+2bp)
Spain: 0.97% (+5bp)
Italy: 1.21% (+3bp)
Portugal: 3.38% (+1bp)
Japan: -0.05% (-2bp)
Greece: 8.39% (-3bp)

Yields were higher nearly across the board at the end of the week despite the release of weaker than expected economic data on both sides of the Atlantic and generally dovish Fedspeak, although two ECB speakers did come out acknowledging that negative interest rates had costs.

IHS Markit's composite purchasing managers' output index for the single currency bloc´s manufacturing and services sectors slipped from 52.9 in August to 52.6, pointing to the slowest pace of activity since January 2015.

Significantly, the average reading for the composite PMI index dipped to 52.9 in the third quarter from the 53.1 reading for the prior three months.

That, the survey compiler said, "suggested that the economy is losing, rather than gaining, momentum."

Later in the day, Markit’s flash US manufacturing purchasing managers’ index fell to 51.4 from 52 in August, missing expectations for a reading of 51.9. A reading above 50 indicates expansion.

Going the other way, the Belgian central bank´s business confidence gauge improved to a reading of -2.2 in September, thanks to improved readings for manufacturing.

In remarks posted to the Federal Reserve bank of Boston´s website, regional Fed president Eric Rosengren said the case for an immediate interest rate hike had become even more compelling when one considers the implications for the "sustainability" of the current economic expansion of the current policy, a top US central bank official said.

However, later in the session his equal number at the Minneapolis Fed, Neel Kashkari, echoed Fed governor Lael Brainard, saying the greatest risk to the economy lay in moving too quickly to raise interest rates.

He was joined by Dallas Fed chief Robert Kaplan, who reportedly told an audience: "We don't think the economy is overheating".

"We are not as accommodative as people would think."

Back in the euro area, early on Friday morning ECB Governing Council member Francois Villeroy appeared to concede there was a limit when deploying negative interest rates.

"Negative rates are a useful part of our toolkit, but there are clearly limits to them [...] We know there is a lower bound, even if we don’t know exactly where it is: somewhere slightly below zero," he said at a conference in Frankfurt.

Another ECB rate-setter Vitor Constancio reportedly also acknowledged the potential negative side-effects of interest rates below zero.

"We all hoped that reaction of the economy would have been much quicker as a result of the expansionary monetary policy we have put in place," Constancio said.

"It is taking longer than anyone expected."