Bonds are feeling the benefit of safe haven buying as commodity prices and equities sink. Appeals for calm from Japanese Prime Minister Naoto Kan were accompanied by further measures to add liquidity to domestic money markets aimed at soothing investors’ nerves. At this point little is working to stem the crisis and the only reason investors will stop liquidating risk positions is when the media stops having to report the level of radiation around Fukushima to the North East of Tokyo.
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Eurodollar futures – Short and long ends around the world have surged sending yield curves lower in response to the elevated radiation readings from Japan’s ailing nuclear power plants. Non-stop efforts by nuclear engineers to provide cool liquids to the reactors appears to be working as reported radiation levels decline for now. The FOMC announces its latest monetary policy decision on Tuesday afternoon and while the freshest piece of data depicts the strongest reading for manufacturing activity in the New York area in at least nine months, the report will be lost amid the uncertainty spawned by the natural disaster in Japan. The benchmark yield at one point slid to 3.20% or some 55 basis points below its February peak in direct response to the unfolding Japan nuclear disaster. At that level the yield is the lowest since December 10. The June Treasury note future at one point rose to 121-14 before demand tapered off. At its highest point of the session the contract was higher by a full point-and-a-half. Eurodollar futures are about 10 basis points off session highs but have still made double-digit gains as implied yields reflect the threat to global growth.
Japanese bonds – June JGB futures surged again to reach 141.17 before closing lower on the session leading the 10-year yield higher by a single basis point to stand at 1.22%. Efforts by the Bank of Japan to deter financial collapse went unnoticed after they injected ¥8 trillion into the banking system. Nevertheless stocks collapsed and put in the worst back-to-back performance since the 1987 crash. Investors liquidating stocks and repatriating funds seeking the safety of government debt weighed the situation carefully. Recent warnings from Moody’s over a possible “tipping-point” for the fiscal health of Japan didn’t go unnoticed with the cost of insuring government backed bonds rising to a record high. The auction process aimed at raising funds to rebuild the devastated area begins midweek with a ¥1.1 trillion ($13.5 billion) 20-year auction.