IB Interest Rate Brief: Notes skyrocket on Philly Fed survey weakness
European long ends are lower sending yields a little higher this morning as investors again breathe a collective sigh of relief over the potential for fallout over sovereign debt issues. Former Chairman at the Fed, Alan Greenspan served up a dose of pessimism for yields in an editorial today. He notes that long ends can’t remain as low in yield as they currently are in light of the mountain of debt the U.S. government and those around the world have to climb. For now, pressure on bond prices is waning as the need for safety erodes if only at the margin.
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Eurodollar futures – After a substantial rally for Eurodollars yesterday on account of signs of a less robust expansion in the New York area, prices have eased by only a tick or two to end the week. The New York Fed’s regional survey took investors by surprise although its weakness probably has little to do with anything happening in Europe. September Treasury note futures have failed to maintain Thursday’s tempo and fell to 120-16 after Mr. Greenspan’s words of wisdom.
European bond markets – The better tone to risk appetite following Thursday’s largely successful auction by the government of Spain has left the September German bund contract trawling the lower end of its two-week range. The contract is lower by 28 ticks at 128.09 and a defeat against Serbia in today’s World Cup game will likely further dull appetite for the safety of Germany. Ten-year bonds currently yield three basis points higher today at 2.69%.
British gilt – There was positive news for British gilt prices today although the overall positive tone for risk appetite tipped the September contract lower in line with other European bonds. The September gilts is trading at a yield of 3.51% with the price shedding 12 ticks after the number of mortgage loans steadily improved in May. In an encouraging sign of better growth, the fiscal deficit narrowed during May falling short of expectations and indicative of strengthening tax receipts.
Canadian bills – Canadian yields are keeping pace of developments in the U.S. with the 1-year benchmark matching the movement in treasury prices. The September bond futures contract is weaker by 13 ticks at 121.62 to yield 3.31%.
Japanese bonds – Positive words from newly-minted Prime Minister Kan saying he’d like to reduce the world’s largest budget deficit were welcomed by the bond market where yields dipped a couple of basis points to 1.186%.
Australian bills – Aussie bill eased in price to reflect the moderately more favorable risk tone. Bond yields remained static at 5.35%.
Andrew Wilkinson
Senior Market Analyst
ibanalyst@interactivebrokers.com
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