Interest rate monitor for Dec. 14

President Obama will today meet in Washington with leaders at 12 of the nation’s largest banks and tell them frankly to do a show more gratitude for the country that stood behind them at their darkest hour. Meanwhile his top-aid, Larry Summers said in a Sunday interview that he expects job growth to resume by the spring of next year. Today the Bank of England said that depressed conditions created by the financial market fallout have helped keep a lid on pay settlements occasionally causing them to freeze. U.S. bonds are a tad higher ahead of the two-day FOMC meeting that starts tomorrow.

The news that the Kingdom of Abu Dhabi has helped lift something of a dust-cloud that had gathered over the market recently, although there is certainly no rush after the weekend announcement to exit government bonds today. Yields remain stable, albeit at the highest levels in a couple of months in the face of otherwise broadly improving economic conditions.

Eurodollar futures are as flat as a pancake this morning with earlier gains trailing off. The theme continues to be that of a recovery in economic conditions and what its impact might be on monetary policy. Already Mr. Bernanke poured cold water on the thawing employment report no sooner than it was released and so what impact the words of Larry Summers may have remains to be seen, at least in terms of investor perception over changes in monetary policy. President Obama will instruct banks to lend more to small business when he meets leaders today in the hope of inspiring further confidence in labor market prospects and a broad-based recovery.

Last week the yield on the 10-year note reached 3.58% for a four month high, while the gradient of the 2s10s maturity of the curve stretched out to a six-month high at 275 basis points. Currently the interest rate futures market predicts that three-month cash on a year’s time will be 1.25% according to the December 2010 contract. The March note is up one tick at 117-22 and carries a yield of 3.53%.

European short futures – The March German bund contract is 40 ticks higher at 123.09 while the positive rate environment was extended by the words of the Finnish central banker who tried to discern between dropping the fixed repo rate in exchange for more a more flexible variable rate. He noted that investors seem to have got the message that the subtle change hardly meant any change in its monetary stance. So after some slippery recent days, European rates are treading water today.

British interest rate futures – are heading lower as short yields rise a shade. The June 2010 expiration for example has slipped a couple of pips to yield 1.03% this morning. March gilt futures at the 10-year area of the curve remain 16 ticks higher to yield 3.83%.

Australian rate futures –Australian yields rose one basis point to 5.5% on little news today. The Aussie currency didn’t really catch a bid from the overnight Dubai World news. One would have thought it might, but perhaps it’s simply too late in the year to expect new positioning.

Canada’s 90-day BA’s are flat in line with Eurodollar futures. Government bonds continue to mirror the performance of treasuries. The10-year Canadian government bond yields 3.37%.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers. ibanalyst@interactivebrokers.com

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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