Bonds: Newly minted Fed chief catches some traders on the hop

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

US: 2.91% (+5bp)

UK: 1.56% (+5bp)

Germany: 0.68% (+3bp)

France: 0.95% (+2bp)

Spain: 1.56% (+1bp)

Italy: 2.01% (-1bp)

Portugal: 2.02% (+2bp)

Greece: 4.38% (-3bp)

Japan: 0.047% (0bp)

Longer-term Gilts retreated on Thursday, with the ability for the goings-ons in the US Treasury market to exert a gravitational pull on this side of the Pond again clearly on display.

As expected, in prepared remarks for his semi-annual testimony to the US House of Representatives' Financial Services Committee, newly-appointed Federal Reserve chief Jerome Powell emphasised the strength of the current upturn, even while reiterating the convenience of a "gradual" pace of rate hikes.

However, in response to a query from a lawmaker he said his personal opinion was that the economy had strengthened further since December.

It was precisely the answer to that question which some analysts had been waiting for as a potential confirmation that four, and not three, interest rate hikes were on the table for 2018.

"Equally important is that we don’t think that he intended to present a hawkish view, instead providing insight into the new Fed that will be the least dovish in almost two decades.

"In particular, when asked what conditions would justify four hikes rather than the current three dictated by the dots, he pointed out that the economy and inflation have improved since the three hike forecast was made in December. He stated that he personally felt the economy has strengthened since December and suspected that other committee members would feel the same way.

"[...] In total, and to reiterate, we felt that the testimony provides insight into a Fed that may pivot to a more hawkish platform, particularly if it continues to see encouraging data points. The markets, which had been mostly unchanged prior to Q&A session have since taken this hawkish tone to heart," said analysts at BNY Mellon.

Meanwhile, in the background, the Conference Board's consumer confidence index jumped from a reading of 124.3 for December to a 130.8 in January (consensus: 126.5) - its best level since November 2000.

Nevertheless, Ian Shepherdson at Pantheon Macroeconomics was dismissive of the predictive power of that print.

"Still, both readings (for consumers' expectations and the current climate) are very high, and appear consistent with rocketing consumers' spending. But sentiment and spending aren't the same thing, and with real after-tax income growth at just 2% or so, while the saving rate is near record lows, the 4.5% growth in spending apparently signalled by the confidence numbers just can't happen."