Bond buyers’ appetites dampened by retail sales

Government bond gave back a small part of gains made a day earlier after the Japanese government raised the severity of the unresolved nuclear disaster. At the same time there is some resistance to fully reverse the yield decline on account of the chorus of voices warning over risks to growth stemming from a prolonged bout of commodity price gains.

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Japanese bonds – Government bond prices made gains for the first time in six days after the government revised lower its economic outlook on account of the earthquake, tsunami and ongoing nuclear trauma. June JGB futures made a 16 tick advance to 138.78 maintaining the 10-year yield at 1.31%. The performance was admirable in the face of a rebound across Asian stock indices.

Eurodollar futures – Implied yields on three-month Eurodollar futures added a couple of basis points having fallen by 11 basis points the day before. A retail sales report for March proved the consumer showed a little more resilience than had been expected although the pace of increase was about half that witnessed in February. Sales excluding autos and gasoline rose by 0.6% and ahead of a gain of 0.5%. Economists are keen to understand the behavior of the shopper in light of rising food and gasoline prices. Sales at gasoline stations grew by 2.6% last month, hardly surprising after the average retail price at the pump rose to its highest since September 2008. Furnishing stores saw the highest demand in seven years, while sales of electronics were the strongest in a year. June Treasury note futures reached a session low of 118-24 following the news but have pared declines to trade at 119-00 to yield 3.52% adding three basis points to Tuesday’s closing level.

European bond markets – German bund prices reached the day’s low at 120.20 after a wholesale prices report showed inflation rose on this measure to the highest since 1981. By midday in New York the contract had reversed course with the June contract in the black at 120.50 to yield 3.45%. The session was reportedly heavy on account of rising government supply this week. Dealers also responded to a fifth-monthly gain for Eurozone industrial production albeit at a below expected pace. Euribor 90-day futures softened by one tick edging implied yields higher.

British gilts – June gilt futures softened after a strong performance the day before when inflation data surprised to the downside and removed fears over an imminent monetary tightening. Today’s jobless claims data disappointed recovery hopes marginally. The claimant count rose by 700 instead of falling by 3,000 although the ILO unemployment rate unexpectedly dipped from 8% to 7.8%. The benchmark government bond yields 3.72% after Wednesday’s data with short sterling futures paring yesterday’s near 20-tick surge with session losses of four basis points.

Canadian bills – Short-end futures jumped notably with the September expiration adding five pips compared to static prices for deferred contract. The Bank of Canada continues to pour cold water on nearby monetary tightening expectations causing investors to defer the prospect of a rate increase towards the end of the year. Government bond futures rose marginally with the June contract adding eight pips to 119.38.

Australian bills – The reversal in stocks midweek following a fear-induced slide the day before relaxed tensions in the money market forcing sellers to focus on 90-day bills. Implied yields rose by four basis points with sentiment also impacted by a rise in the Westpac confidence index, which added 1.2% following a dip during March of 2.4%. The government bond yield added four basis points to close at 5.62%.

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.

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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