Bonds under pressure as S&P points to U.S. debt

Japanese bonds – Government bond prices made headway as thoughts of a slowdown in global demand spurred demand for the safety of government bonds. The June 10-year JGB future added 36 ticks to 139.48 sending the yield lower by three pips to 1.25%.

British gilts – The British yield curved continued the flattening process that started in the aftermath of weaker than expected inflationary pressures last week. The short end of the market made gains of five basis points while further short sterling expirations gained by three-times as much. Gilt futures expiring in June rose by 35 basis points sending the 10-year yield lower by three pips to 3.56%. Consultant Ernst and Young dulled their prediction for 2011 growth by half of one percent claiming that this supported an unchanged base rate outlook at the Bank of England.

Canadian bills – Ninety-day bills of acceptance rallied along with other global short-ends. The Bank of Canada is clearly toying with the notion of tightening monetary policy, but remains encumbered by a firm domestic currency. The threat of a dramatic slowdown in global growth on account of a European implosion is naturally gnawing away at their bias. Government bond yields slumped by five basis points on safety grounds as U.S. yields edged higher. Canada has one of the nicer budget stories as the globe emerges from recession and intends to be the first G7 nation to balance its books within four years. The June future surged by 62 ticks to 121.10 as yields eased while 90-day futures gained by six basis points.

Australian bills – Weakness in Asian stocks dampened recent enthusiasm for higher-yielding assets and raising worries in the credit markets that global growth might slow. Adding to concerns was a weekend increase from the Peoples Bank of China in the reserve requirements it sets across the banking system. The Governor warned that monetary tightening might go on for some time to come. Short-dated bills of acceptance rose by six basis points as investors reduced expectations for a rate increase in coming months and lowering implied yields. Bond prices rose sending the benchmark yield on government data lower by five basis points to 5.52%.

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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