Bonds: Gilts slump on retail sales data as safe haven bid unwinds

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

US: 2.41% (+1bp)
UK: 1.23% (+5bp)
Germany: 0.43% (+2bp)
France: 1.04% (+0bp)
Spain: 1.73% (-1bp)
Italy: 2.27% (+1bp)
Portugal: 4.20% (+4bp)
Greece: 7.39% (-1bp)
Japan: 0.06% (0bp)

Gilts underperformed as the previous session's flight to safety bid unwound, with a much stronger than expected reading on retail sales further weighing on the longer end of the curve.

UK retail sales volumes jumped 1.4% month-on-month in February, easily surpassing the 0.4% rise which markets had been expecting.

Despite that, economists continued to sound a cautious note given the acceleration seen in prices which at some point was expected to take its toll on consumer spending.

"Today’s print supports our forecast of a slowdown in Q1, with GDP likely growing less than expected by the BoE, which would contain some of the most hawkish members on the MPC," said Fabrice Montagne and Andrzej Szczepaniak at Barclays Research.

Montagne and Szczepaniak were also forecasting that CPI would peak at a 3.1% year-on-year clip in May and June before falling back to 2% over 2018.

For his part, Paul Hollingsworth, UK economist at Capital Economics, said: "with credit conditions remaining supportive, and consumers’ confidence in the outlook for their own finances still quite strong, we expect overall household spending to slow this year, rather than collapse outright."

Elsewhere, US Federal Reserve chief Janet Yellen shied away from making any policy relevant remarks in a speech.

San Francisco Fed chief John Williams made up for that to an extent, telling the Wall Street Journal that the median expectation from US monetary policymakers for a total of three to four interest rate hikes in 2017 would make sense if the economy continued progressing as expected.

"A view, like the median view of my colleagues, of say three or maybe even more increases this year, makes sense to me, but it would depend on the data," Williams said.

Continued progress in the economy would bring the Fed closer to the point of starting to normalise its balance sheet towards the end of the year, he added said.

Also in the spotlight on Thursday was a vote in the US House of Representatives on president Trump's proposed repeal of Obamacare.

For some traders that would be a litmus test of the White House's ability to push forward its legislative agenda, including on de-regulation and tax cuts.