A reversal in earlier gains for the dollar was brought on by a jump back to 409,000 for initial weekly jobless claims through last weekend. The report alleviated some pressure on bond yields, which rose sharply on Wednesday in response to ADP’s highest reading on record indicating the labor market is heating up. Elsewhere bond markets are having a hard time pulling themselves much higher than to an unchanged reading on the day as broadly improving economic conditions keep a floor below any dip in yields.
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Eurodollar futures – The reading of continuing claims jumped a little higher and in-line with today’s gain in initial claims. Both remained close to two-year lows. The treasury market seemed to breathe a sigh of relief in response following Wednesday’s 14-basis point surge in yields to 3.47%. Following today’s report some fears for a drastic non-farm payroll reading on Friday appear to have been allayed for now at least. March treasury futures extended gains after today’s report to reach 119-25 where the yield fell by four basis points to 3.43%. The implied yield on the December 2011 expiration Eurodollar future eased by six basis points before contract sellers rushed to lock-in lower yields, tempering the daily gain.
European bond markets – Investors had to wade through a plethora of data midweek including the strongest reading for economic confidence in the Eurozone for more than three years. The ongoing strength in manufacturing orders was further evidenced by a 20.6% year-over-year jump in November factory orders in Germany. Consumer confidence around the zone nevertheless unexpectedly worsened and helped inspire a weakening of peripheral bond yields relative to those of Germany. The March bund future rebounded from an earlier low at 125.10 to reach 125.64 before sellers stepped in later in the afternoon. The contract last traded at 125.23 as the contract fades lifting yields at the 10-year to 2.95%. Italian and Spanish debt prices suffered larger losses with comparable yields adding seven basis points while Portuguese debt added 24 basis points.
British gilts – The British yield curve steepened with short sterling contracts at nearby maturities rising in price while longer maturities fell. The curve movement made sense in light of an unexpected contraction in the all-important services sector according to a PMI report. The data slipped below the critical 50-level for the first time since April 2009 but supports a steady outlook form the Bank of England. The rise in longer-dated yields fits into the background of a shift in global rate expectations. The March contract fell 25 ticks to trade at 117.89 while lifting yields at the 10-year to 3.55%.
Japanese bonds – Buoyant stocks and a rising Japanese yen helped shave 85 ticks off the March JGB futures contract sending yields surging by five basis points to 1.21%. A looming ¥2.2 trillion ($26.4 billion) auction of 10-year government securities also weighed on the market with dealers perhaps holding back from bidding in the knowledge that several hours later global yields might shift for the worst depending on the U.S. employment report on Friday.
Australian bills – Aussie yields barely budged across the curve with the 10-year government bond reaching a yield of 5.60% while shorter contracts saw the lightest volume in some time. A reading of building approvals for November disappointed recovery hopefuls and declined for the third month out of four this time by 4.2%.
Canadian bills – Government bond futures rallied to 121.25 sending the yield lower by four pips to 3.24%.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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