An early Monday morning commodity price rebound was insufficient to keep government bond prices downtrodden despite rising risk appetite in most parts. Dealers in the United States Treasury market also tried pushing bond prices lower ahead of an auction of further supply, but even that wasn’t enough to keep worrywarts satisfied. An S&P downgrade for Greek long-term debt has soured the earlier positive tone and caused the dollar to find favor as government bonds come back in to favor.
Eurodollar futures – The U.S. market faces now economic data, although $72 billion of new government supply will once again pepper the trading day with some color. Eurodollar futures continue to break away over and above the November heights breached Friday following payroll data as investors extend their view of little chance of any move from the Fed in the quarters ahead. The six-month highs for Eurodollar contracts sees the market now predicting a three-month Libor at 0.54% in March 2012 further reducing the odds of an official change by then in the key fed funds benchmark rate to around one-in-three. Last week the odds stood at 62% after the contract made gains of 32 basis points during the last four weeks. Ten-year U.S. yields pared earlier losses after negative European events began to unfold and crimped a buoyant pre-market session for stocks. The June contract rose by five ticks to 122-14 yielding 3.15%.
European bond markets – An unannounced EU meeting took place Friday after German magazine Der Spiegel broke a story claiming Greece was set to quit the European Union. In the event its partners extended their support for the nation saying that they would now review the terms of the €110 billion aid package and said that Greece needs further support after investors dumped its bonds forcing two-year yields to rise above 25%. Today S&P warned private investors that should such a review include the extension of maturities, they should expect losses. In the event the ratings agency cut Greek long-term bond ratings by two notches to B from BB- and said that the outlook may bring a further weakening. Euribor futures rallied by as much as nine points extending last week’s rally that bet the central bank would halt progress on rate increases in light of a strengthening exchange rate and negative implications for growth especially in the peripheral nations. June bund futures have made extended gains in the past hour and stand higher by a full point at 124.40 shaving seven basis points from its yield to 3.09%.
British gilts – Short-sterling futures didn’t need much encouragement to join the declining yield party. The credit market was already in buoyant spirit after the trade body CBI warned of weaker growth this year and next on account of the vast government spending cuts still trickling through to a dull British economy. Implied yields slipped by around four basis points at longer-dated maturities, while the June gilt futures contract shot to 120.84 at best sending the 10-year yield lower by three basis points to 3.35%.
Canadian bills – The ninety-day bills market is higher by three basis points on the heels of gains for Eurodollars. Today’s April housing starts data showed an annualized increase of 179,000 new homes and just short of expectations. The June government bond futures contract remains at its session high at 122.75 to yield 3.17% as credit markets continue to push yields lower.
Australian bills – Aussie yields slid by four basis points at the 10-year area of the curve in light of a strong close to North American trading despite a strong U.S. payroll reading. The government bond contract closed yielding 5.39% while the short end of the curve failed to respond in negative fashion to a twelfth-straight rise in the ANZ job advertisement series. The report is, however, another leg of anecdotal evidence of the health of the economy but did not help traders deduce that further monetary tightening was increasingly likely as a result.
Japanese bonds – The Bank of Japan at its April 6-7 meeting unveiled measures to help the economy through the aftershock of the earthquake through a lending program. In minutes released today it also appeared at the ready to further ease its monetary policy if conditions dictated. Bond yields stood still in the face of a decline in the benchmark Nikkei 225 stock index on Monday with the yield stuck at 1.13%. June delivery JGB futures nevertheless gave up 11 ticks to 140.64.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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