Canadian bills – What’s good for the U.S. is good for Canada, and so what’s bad for U.S. monetary policy is also bad for the outlook for that of Canada. Short-dated implied yields fared better but still rose by six basis points on Thursday following U.S. initial claims. The strengthening Canadian dollar is likely to remain a feature and therefore restrain the Bank of Canada from policy action as it admitted earlier in the week when it left the benchmark rate at 1%. Government bonds yield five basis points more today as bonds globally fall into a hole. The spread against treasuries continued to widen at a snail’s pace to sit at 15 basis points today.
British gilts – Selling pressures across the short sterling strip returned after the ECB press conference reigniting claims that the Bank of England would be forced to deal with rising inflation. The fact that the ECB now says it will do so was seen as a warning shot across the bows of the Bank of England. Short sterling implied reversed a positive tack set earlier in the day after a service sector report showed a weakening in the pace of activity. The strip had made gains of about four pips but the curve was trashed post-Trichet. The contract is currently lower by between six and 12 ticks along the curve. The yield on the March gilt future added eight basis points to 3.70%.
Japanese bonds – A downturn in the pace of activity across China’s service sector in February took some pressure off the need to tighten monetary policy and provided a better tone to risk appetite. Bond sellers showed up as equity prices gained with the Nikkei adding 1% for the day. The JGB future expiring in March fell by seven ticks to close at 139.63 as the yield on the cash bond fell by the most in two weeks lifting the 10-year yield to 1.28%.
Australian bills – Aussie 90-day bills seemed to respond more to a resumption of equity buying than the day’s data. Building approvals for January fell the most since 2002 with a slide of 15%. Meanwhile export volumes fell by 4%, yet implied cash yields bucked the data to rise by four basis points. Bond yields snapped a healthy gain on the week to rise by eight pips to 5.58%.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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