Bonds: Gilts drift lower despite dovish MPC remarks

These were the movements in the most widely-followed longer-term bond yields:

US: 2.22% (-1bp)

UK: 1.83% (+1bp)

France: 0.79% (+2bp)

Germany: 0.47% (+1bp)

Italy: 1.42% (+1bp)

Spain: 1.52% (+0bp)

Portugal: 2.32% (+2bp)

Japan: 0.31% (-0bp)

Greece: 7.51% (+21bp)

Prices on longer-dated Gilts retreated, despite dovish remarks from the Monetary Policy’s Committee’s Gertjan Vlieghe over the weekend, as cable moved below 1.50 versus the dollar for the first time since April.

Vlieghe told the Sunday Times there has been "a little bit of disappointment" in terms of wage growth, and pointed out that economic growth has slowed in the last year-and-a-half.

"I am relaxed about waiting a little longer before we start," he said.

In parallel, the yield on the benchmark 10-year US Treasury note slipped after the release of a much weaker than expected reading on manufacturing sector activity in the Chicago area.

The Chicago purchasing managers’ index fell to a reading of 48.7 in November after a print of 63.4 in the month before (consensus: 54.0).

“The Chicago PMI, formerly a reliable leading indicator of the national ISM indices, has experience heightened volatility this year. While the negative reading in November suggests sluggish Chicago-area activity, we do not see this morning’s print as necessarily indicative of a national slowdown,” Barclays’s Jesse Hurwitz said in a research note sent to clients.

Acting as a backdrop, the single currency weakened to its lowest level since April versus the US dollar, alongside renewed falls in emerging market stocks, with the latter headed towards their worst performance since 2011.

All eyes were on Thursday’s European Central Bank policy meeting and to what extent, or not, the governing council would choose to surprise markets.

"According to rumours, the ECB has seemingly been putting all its creativity to work in trying to come up with just the right measure (s).

"However, we believe that at this stage the ECB will not implement any out-of-the-box policies yet.

"Instead, we see the ECB stick to what it knows, cutting the deposit rate by 15bps and increasing monthly asset purchases by €30bn," analysts at Rabobank said in a research note sent to clients.

German consumer price inflation rose 0.1% month-on-month in November, with the year-on-year rate moving up from 0.3% year-on-year to 0.4% year-on-year.

In harmonised terms, the cost of living in Germany advanced at a 0.3% year-on-year clip, up from 0.2% in October.

“November’s small rise in German HICP inflation appears to have reflected energy effects. With the core rate still very subdued, there is nothing here to put the ECB off increasing its policy support this week and perhaps beyond,” Capital Economics said in a research not sent to clients.

The rate differential between US and German two-year debt hit 135 basis points - its largest gap since 2006 - in afternoon trading in New York.