Bond dealers have to reconcile conflicting factors on Thursday as government paper prices gyrate. Earlier in the session equity index futures pointed to a further lurch lower at the start of trading on account of a nasty concoction of events in Tripoli as Colonel Qaddafi struggles to maintain a grip over Libyans. The resultant triple-digit price of crude oil, powered higher by speculative concerns that supplies will be reduced, has mounting growth concerns around the world. Bond buyers haven’t been in short supply as a result. Equity index futures later rebounded on a revival in U.S. employment fortunes. But that probably isn’t likely to remain as powerful a force ahead if crude oil clings to its current outrageous price.
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Eurodollar futures – Treasury futures reversed course following a 22,000 decline in initial claims through last weekend and a report showing orders for goods meant to last for more than two-years rose almost in-line with expectations. Durable goods orders ex-transportation fell by 3.6%. The March 10-year future earlier reached 120-11 sending the benchmark yield down to 3.43% ahead of Thursday’s data. Later the contract pared gains to reach 120-00. Despite the historic data the forward-looking picture continues to provide support for government bonds in light of rising Middle East tensions and the ramifications yet to be felt of a surge in the value of crude oil. Eurodollars had made price gains earlier of around eight basis points as fears for global growth mounted.
European bond markets – Euribor prices rebounded from earlier in the week losses as investors continued to respond to the unfolding crisis in Libya. Implied three-month cash yields eased by three or four basis points at maturities at least seven months forward and beyond. The optimism in credit markets even upstaged a report showing an index of economic optimism across the Eurozone had risen to a three-and-a-half year peak. Government paper prices continued to rise as investors’ appetite for equity prices weakened further. The March German bund contract jumped by 32 ticks to a session high earlier at 124.60 to yield the lowest in almost a month at 3.12%. However, yields in peripheral Europe rose as threats to growth from a surge in the price of oil emerged. While German yields slipped by two basis points, those in Spain and Italy rose by four basis points while those in Greece added seven basis points.