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Bonds: Gilts little changed ahead of US midterm elections, Fed decision

By Alexander Bueso

Date: Tuesday 06 Nov 2018

Bonds: Gilts little changed ahead of US midterm elections, Fed decision

(Sharecast News) - These were the movements in some of the most widely-followed 10-year sovereign bond yields:
US: 3.20% (-1bp)

UK: 1.50% (+1bp)

Germany: 0.43% (+0bp)

France: 0.79% (+1bp)

Spain: 1.57% (-1bp)

Italy: 3.33% (+0bp)

Portugal: 1.88% (+0bp)

Greece: 4.29% (-1bp)

Japan: 0.13% (+0bp)

Yields on longer-term Gilts rose in tandem with the pound, following a Sunday Times report that the Prime Minister had clinched a backstop deal with Brussels that would allow the UK to avoid a hard border in Ireland.

A spokesman for Downing Street rejected that report as "speculation", yet Sterling gained ahead of a Cabinet meeting to study Theresa May's latest proposal, with the PM's team aiming to have a deal in place by the end of the month.

The concessions obtained by May would reportedly also allow the UK more room for manouevre when tryng to ink new trade deals.

Higher yields on Gilts came despite an unexpectedly sharp drop in IHS Markit's services sector gauge for the UK to 52.2 for October following a reading of 53.9 in September (consensus: 53.3).

On the back of the above, economists at Barclays Research said: "The deterioration in sentiment in October was indeed broad based, spanning both households and businesses.

"PMIs for manufacturing and services weakened while GfK consumer confidence also decline back to the lows of -10 in October. Headline construction PMI improved in October, however, the components were weak across the board."

In parallel, Stateside the ISM's equivalent gauge for US services registered a dip from 61.6 to 60.3, but still came in ahead of the reading of 59.0 that economists were anticipating.

All of the above took place as investors waited on the results of voting in the US midterm elections on Tuesday, with results expected the next day.

As well, the US central bank was due to meet to decide on policy on Wednesday, with further details regarding its target for the size of its balance sheet possible, analysts said.

Japanese government bonds were little changed too, even as the Governor of the Bankof Japan, Haruhiko Kuroda, said that the country was no longer in a decision in which it was best to "decisively implement a large-scale policy to overcome deflation."

Nevertheless, later in Monday he rowed back on those remarks, that powerful stimulus needed to be maintained in order to reach the inflation target.

In all things Italy meanwhile, following Monday's Eurogroup meeting, Italian finance minister, Giovanni Tria, said Rome was not changing its budget but would continue to push for dialogue.

The deadline for Rome to present its revised budget plans to the European Commission was 13 November.


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