Mideast unrest create uncertainty in bond market

Japanese bonds – Stock prices rebounded in the region turning session losses into gains and helping divert bond yields away from three week lows. The March JGB contract ended the session with a loss of seven ticks at 139.52 having rejected an advance earlier to 139.76. The yield on the 10-year added one basis point to 1.245% as traders held back demand ahead of an auction of fresh bonds later in the week.

Canadian bills – A surge in the Canadian dollar in response to a sharper gain for December GDP helped drive government bond yields higher and maintained nearby pressure on the Bank of Canada to rein in demand. An 11-tick decline in the March government bond futures contract saw the yield gain one basis point to 1.30% narrowing the premium paid by U.S. investors at the same maturity to 11 basis points. Short-dated bills of acceptance fell sharply following the GDP reading, which was almost twice as strong as expected. The June, September and December contracts are approximately 25 basis points in yield apart and imply the Bank of Canada will double the current policy from 1% to 2% by year end.

Australian bills – Australian government bond yields eased to 5.50% after Chinese Premier Wen Jiabao set a mildly weaker annual growth rate for the next phase of the nation’s five-year plan. Australia relies heavily on import demand for its raw materials and news that it plans a less expansive policy target weighed to a degree on the outlook for Australia. Shorter-dated bill prices were quiet following a report from TD Securities showing a decline in the monthly inflation rate leaving the year-on-year growth rate at 3.6%.

Andrew Wilkinson

Senior Market Analyst

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.

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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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