Bonds: Fed's Clarida fails to move markets

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

US: 3.06% (+0bp)

UK: 1.39% (-2bp)

Germany: 0.35% (-1bp)

France: 0.73% (-1bp)

Italy: 3.29% (+2bp)

Spain: 1.55% (-1bp)

Portugal: 1.88% (-0bp)

Greece: 4.39% (-1bp)

Gilts outperformed slightly, benefitting from weakness in Sterling as investors bid their time ahead of the critical 11 December vote in Parliament on the Prime Minister's Brexit deal.

Against that backdrop, US Federal Reserve Vice-President, Richard Clarida, appeared to leave markets indifferent as he appeared to tow a less dovish line than during his last appearance.

Nevertheless, he did emphasise the importance of inflation expectations in his decision-making process, going on to explain that market and survey-based measures appeared to be discounting that in future price pressures would be below the Fed's symmetric 2.0% target.

Commenting on his remarks, Mohammed El-Erian told CNBC that rate-setters in the US needed to be careful lest they encourage the notion that policymakers will step in whenever financial markets run into trouble.

According to El-Erian, Clarida's remarks were consistent with a 25 basis point Fed interest rate hike in December and a convergence towards market pricing thereafter.

As of Tuesday evening, Fed funds futures were pricing in roughly 79.2% odds of a December rate increase but market pricing had shifted lower over the past few weeks and at the time of writing it was pointing to only one more hike over the course of all of 2019.

That would take the target for official short-term interest rates in the US to between 2.50%-2.75%, versus the 3.0%-3.25% range which policymakers had heretofor been guiding towards.