Bonds sour as investors see light at the end of tunnel

Japanese bonds – The underlying improvement in the health of the United States economy and the consternation between FOMC members over the outlook for its policy settings is helping to drain appetite for the safety of Japanese debt. Momentum is also building in a fall for the Japanese yen, which is helping relieve the desperate outlook for Japanese exporters. June JGB futures fell for the first time in four days as investors bid up the yield at the 10-year bond to 1.285% and close to a four-week high. The Bank of Japan ends a two-day meeting on Thursday and is highly likely to announce further stimulus to banks aimed at their customer base who may be suffering following the recent disaster.

British gilts – Implied yields relaxed after industrial production data disappointed forecasts for a rebound that would bolster thoughts of a growth rebound in the first quarter. In the event, February industrial output slumped by 0.9% while manufacturing production stood still. Gilt yields struggled to cling on to a gain in the face of rising European yields in general. The June gilt future earlier hit 116.89 before turning lower on the day to 116.53 yielding 3.76%.

Canadian bills – Canadian bill prices are close to the session low following purchasing manager data from Ivey for March. The series exceeded expectations lifting the pace of activity to the strongest since May 2006 and surpassing the last peak in government and company spending achieved during September 2009. Implied yields rose by two basis points on the news, although still remain constrained by the inflation-beating rally in the domestic dollar. Government bond yields moved up by one basis point to 3.38%.

Australian bills –Home loan data was soured during February by the impact of flooding and a massive cyclone. Implied short-dated yields nevertheless rose as risk appetite stepped up a notch despite an interest rate increase in China aimed at cooling its behemoth economy. Demand for Australian government debt following a string of interest rate increases surged midweek as more than five investors attempted to buy 5.5%-yielding seven-year paper. The yield on national 1-0year paper rose by four basis points to 5.56%.

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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