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
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