Interest rate monitor for Jan. 13

Global yields swooned in response to the potential collapse of China from a miniscule measure aimed at tightening its monetary policy setting. Of course the perception that it is a downturn in Chinese growth prospects is the driver here is misguided. Indeed it’s the strength of growth marking the success of policy stimulus that has prodded the authorities to take action. And so in a week where the calendar is filled with an ever-growing volume of debt issuance, it’s no surprise that treasuries and benchmark bonds around the world are giving back some of the gains scored yesterday.

Eurodollar futures – A two basis point parallel upward shift in the dollar yield curve comes on the day the treasury auctions another $21 billion notes in a week marked by a total issuance of $84 billion. 10-year notes have eased off the accelerator this morning with yields back to 3.74%. This afternoon we’ll learn the latest reading from the Fed’s regional office survey and find out how local conditions may have changed. I’d expect to see more moderate improvements helping provide a gentle shove forward.

European short futures – German debt prices gained after supply issuance in German, Italy and Portugal went off without a hitch. March bunds are now six ticks higher on the day at 122.20 where the yield is 3.30%. News that the German economy contracted by 5% rather than 4.8% in 2009 is not a cause for concern. Euribor contracts have risen from a down day to a mild up day.

British interest rate futures – Short sterling contracts are struggling to shake off a two basis point loss in light of a Guardian interview with Bank of England policymaker Andrew Sentence, who said that the central banker was close to being able to turn its back on emergency stimulus. Industrial output for November was stronger than anticipated on account of vigorous oil and gas production. March gilts are lower by six ticks yielding 3.95%.

Australian rate futures –I noted yesterday that the Chinese de facto monetary tightening was being treated as taking away the need for further RBA action. That theme continues with bills up around seven ticks across the curve. Bond yields slid 11 basis points as they caught up with yesterday’s global yield rally and stand today at 5.51%.

Canada’s 90-day BA’s – Canadian government bonds rose by one basis point to yield 3.55%. The spread below U.S. notes widening to 18 basis points.

Japan – JGBs rose by 13 ticks sending yields off a recent peak at 1.36% in response to the overnight rally in yields following China’s monetary tinkering. The yield curve flattened by one basis point as two-year noted rallied harder.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers.

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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