Interest rate monitor: Yields off to slow start

Global long ends are back in rally mode as most Asian stock markets pulled back after recent gains and investors prepare for disappointment from an EU meeting in Brussels. Fears are that any agreement on principles that could lead to the provision of financial assistance to Greece as it moves forward with fiscal reform will not make the Eurozone’s sovereign debt crisis disappear.

Eurodollar futures –Eurodollar futures remain higher after a New York Fed manufacturing survey indicated positive manufacturing activity within the sector albeit at a lesser pace. Investors also await the outcome of the March FOMC meeting Tuesday and will examine the statement for any change to the Fed’s comments about the longevity or otherwise of the ultra-low monetary policy stance. December expiration Eurodollars are higher by three basis points at 99.13 carrying an implied yield of 0.87%. June note futures are in a very narrow trading range to commence the week and sit one tick higher at 116-26 to yield 3.71%.

Australian rate futures –Aussie bills rose in light of weakness in regional stock prices. Bill prices added three basis points as implied yields dropped along the curve. Dealers await the latest RBA minutes this week and will scour the notes in the hunt for clues as to how much more tightening the central bank feels it may need to add on top of the 1% it’s already administered. December bills at 94.66 imply a 5.34% yield.

Canada’s 90-day BA’s – Canadian bills are extremely quiet with no change to note.

European short futures – June bund prices are 10 ticks higher at 122.65 after a day of weakness on Friday. Short European futures prices are also higher in early afternoon trading with the December contract higher by three ticks to 98.79 where the implied yield stands at 1.21%.

British interest rate futures – Short sterling futures have accentuated gains at the back end of the curve where prices are three ticks higher, while the front of the yield curve is only marginally higher. June gilts at 114.32 are higher by 37 ticks and are the strongest among European markets after a Moody’s Investor Services report warned that the nation’s AAA credit rating remains safe – for now. Deteriorating fiscal conditions and a perilous post election situation may yet rob the nation of a rating it has always been assures of. Gilts are higher over the potential for the Bank of England to ease its quantitative stance further in light of comments from one member of the committee who noted the potential for GDP to head into reverse for one quarter.

Japan Bonds rose 10 ticks at the June future to close at 138.95 where the yield is 1.31%. This week the Bank of Japan is due to conclude a two-day policy meeting at which it is widely expected to bow to government wishes to provide further assistance to a banking system struggling to revive demand for loans.

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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