Bonds rebound from earlier losses as crude oil gains

Bonds have once again fallen off the fence sending yields on government bonds towards a two-week high. Dealers were quick to find room for indecision following the in-line employment report on Friday that was tossed aside in light of the excitement in the crude oil market, where prices later jumped towards the highest in three years. The one-step forwards and two-steps back progress of daily developments has bond buyers backing off each time the stock market recovers from the trauma of a slip into the gutter.

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Eurodollar futures – With $66 billion worth of notes and bonds on the auction block this week, it’s once again simply business as usual for traders. Sell bonds ahead of the auction and buy fresh supply from the government. Data-wise the major report doesn’t come until Friday when February retail sales look set to rebound from mediocre data inspired by inclement weather. Eurodollars are lower shedding up to four basis points while the June Treasury note future has turned around from a rally in overnight trading. The contract is 10 ticks lower and five ticks off the session low at 118-05. Atlanta Fed President Dennis Lockhart said he’d be cautious about extending the Fed’s generous asset purchase plan after it’s scheduled to expire in June. However, given the new threats to the economy he’d prefer to have the flexibility to keep on buying bonds in light of the fact that the U.S. economy could slow as a result. Yields at the 10-year jumped by six basis points to start the week at 3.55%.

European bond markets – German bund futures expiring in June started the week off in a bad mood lifting yields by four pips to 3.31% and the day continued to worsen. Bunds fell in light of the U.S. labor data on Friday with the prior day’s warning from the ECB to keep an eye out for a monetary tightening still ringing in dealers’ ears. The June contract slumped to a session low at 121.32 earlier but has steadied to show a 27 tick loss at 121.47. Friday’s lowest point at 121.12 is a clear nearby target for bears. Moody’s slashed the credit rating of Greece by several notches saying that the country is at risk of defaulting as the struggle to implement deficit-reducing measures increases. Despite the heavy-feeling at the long-end on Monday short-dated futures managed to rally putting in a three-tick gain even in the face of a rise to a three-and-a-half-year high for Eurozone-wide investor confidence.

Canadian bills – Short-dated bill prices dipped by one pip while the government bond contract expiring in June rebounded from an earlier session low at 119.53. The 10-year yield added three basis points to 3.35%. There was no material economic data to drive sentiment on Monday.

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