Pressure on yield curves remains intact

British gilts – British gilt futures are trying hard to maintain positive direction midweek following a larger than expected drop in the jobless claimant count. Claims were due for a mild rise, but ended up falling by 10,200 during February leaving unemployment at 1.45 million and the lowest since February 2009. Yet within the data, public sector employment fell sharply at year end and ahead of savage job cuts likely to kick-in during the present quarter. Implied yields at the short end unwound some of Tuesday’s optimism following the labor market data rising by two pips while gilt yields eased by one pip to 3.52%.

Canadian bills – The long end of Canada continues to outpace the yield performance of U.S. Treasuries. Even following a robust reading for January manufacturing data, investors continue to pressure yields lower. Manufacturing sales surged by 4.5% on the month blowing guesses of just 1% out of the water. The 10-year yield fell by four basis points to 3.16%, widening its cushion below treasuries to 13 basis points. A firm domestic dollar is likely keeping inflationary pressures in check despite likely restraining demand for Canadian goods. The likelihood of any change from the Bank of Canada in this environment continues to look slight, helping propel bills of acceptance to a four tick gain on the day.

Australian bills – The rebound in Japanese stocks and resuscitation for Asian dollars saw some slippage in credit markets in Australia overnight following exceptional gains on Tuesday. At that time dealers wiped out expectations for further monetary tightening and it appears that profit taking may have been behind the four-pip increase in implied yields on Wednesday. Aussie government bonds rose maintaining pressure on the benchmark yield, which eased by one basis point to 5.35%.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

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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