British gilts – A slide in optimism amongst retailers and a caution from a central banker over the urgency to tighten monetary policy provided fertile ground for short sterling bulls as risks to global growth advances. Short sterling futures rose by up to nine ticks at deferred maturities as investors responded to a speech delivered by david Miles of the MPC, who last week voted to maintain policy as is. Mr. Miles agreed that inflation at 4% appeared “deeply worrying” but reminded his audience that the cause was not loose monetary policy but revenue-raising tax measures and rallying commodity prices. Meanwhile his observation that growth risks to the Bank’s central forecast were skewed to the downside are finding further tailwinds in the form of $100-a-barrel crude oil. March gilt futures added half-a point to 117.76.
Japanese bonds – A stronger yen and an ongoing bout of stock market weakness spurred demand for the safety of government bonds on Thursday. The 10-year yield fell to 1.22% and its lowest since February 2. March JGB futures rose 22 ticks to close at 139.92.
Canadian bills – Short-dated bill prices in Canada can’t quite match the more optimistic tone in the U.S. even as investors have a firm gaze on the threat to growth from stiffening oil prices. Bill prices are trading unchanged while the decline in government bond prices is insulated from the reversal in treasury prices this morning brought about by robust durable goods and initial claims data. The three-pip increase in Canadian yields is less than that on treasuries forcing a wider premium of 15 pips to be paid by U.S. investors.
Australian bills – Despite the rising tensions in the Middle East Aussie bill prices and government paper prices fell at the margin causing a mild increase in borrowing costs. Culprits were a stronger domestic dollar and a report that showed a record amount of capital investment among Australian businesses during the last quarter of the year. Local businesses especially mining companies spent a record A$29.7 billion in capital expenditures in the three months ending in December as escalating demand for raw materials from China and India puts pressure on capacity. The benchmark Aussie 10-year yield nudged higher to 5.55%.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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