Bonds: Long-dated yields moving higher again

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

US: 1.79% (+3bp)

UK: 1.15% (+6bp)
Germany: 0.09% (+6bp)
France: 0.37% (+6bp)
Italy: 1.46% (+8bp)
Spain: 1.13% (+5bp)
Greece: 8.28% (-13bp)
Portugal: 3.21% (+2bp)
Japan: -0.06% (+0bp)

Longer-dated bond yields headed back higher almost across the board on Wednesday amid heavy issuance from both sovereigns and corporates.

Rome was in the market with auctions of inflation-linked debt maturing in 2024 and 2026, alongside the likes of Portugal and Germany, with the latter selling €3bn in five-year debt.

That saw yields on Italian 10-year debt rise back towards their mid-2016 levels.

US corporates Merck&Co and Verizon also sold debt.

During the previous session, the UK Treasury sold £4bn in 2065 debt through banks and Austria €2bn in 70-year notes.

To take note of perhaps, over recent days at least a couple of analysts had highlighted the potential long-term risk for investors - should interest rates head materially higher - given the trend towards ever longer durations on their bond holdings in recent times.

As far as Gilts were concerned, some market commentary was calling attention to remarks from Bank of England officials during the previous session that there were limits to their willingness to 'look through' an overshoot of their inflation target as a driver of the higher yields.

In the case of Italy and Spain, Dr. Luca Cazzulani, Deputy Head of Fixed Income Strategy at UniCredit Research, commented on the divergence between Spanish and Italian bond yields seen in the last few days, with the 10-year spread at roughly 37 basis points as of Wednesday afternoon.

Cazullani linked that behaviour to the uncertainty surrounding the Italian referendum and the recent divergence between political events in ech of those countries, although some caution was required on a medium-term basis.

That political divergence "should be at least in part priced in and, barring further deterioration, should not be seen as a factor continuing to push spreads wider … ," he said.

Nonetheless, in the short-term the 10-year yield spread between Italian and Spanish bonds might reach 45 or 50 basis points, he added.