Canadian bills – Mixed data for the Canadian economy left credit markets turning to U.S. markets for direction. Leading indicators compiled using April data rose a little more than expected with a 0.8% gain. Data for the previous month was revised lower taking some of the wind out of the sales of a better April showing. A separate report showed wholesale sales improved by far less than anticipated ahead of the data. The March reading showed a slight gain of just 0.1% when analysts’ forecasts called for a jump of 1.2%. A previous dip was also revised marginally higher. While official G7 inflation projections have not yet been revised lower, investors at least are breathing softer in light of a slide for raw materials. This is showing up in outperformance of the Canadian short end whereby 90-day bill futures have felt less fallout from weakness across comparable Eurodollars.
Australian bills – A first quarter report showing a weakening in the pace of wage pressures set a softer tone to interest rate expectations midweek. Dealers had expected acceleration from a previous pace of 1% for the wage cost index in the fourth quarter but were pleasantly surprised by a dip to a pace of 0.8%. The report is a positive development from the perspective of the central bank who recently continued to warn that monetary policy would likely have to rise from its comfortable 4.75% if inflation starts to develop signs of worsening. Today’s report depicts a well-behaved labor market. A separate report showed fewer skilled vacancies according to a DEWR survey with a decline in the number of positions reportedly available in May. The report also wiped out the increase reported last month indicating a worsening in labor market health. Short-dated bill futures saw implied yields decline by up to five basis points as dealers felt the reports would allow them to pare interest rate expectations. Government bond yields also responded with a two pip decline to 5.33%.
Japanese bonds – The Japanese 10-20-year yield curve widened out a notch or two as regional stock markets reversed losses experienced earlier in the week. The June 10-year JGB future closed with a minor gain of seven ticks to 140.67 while its yield remained unchanged at 1.14%. A service sector index showed weakness and dipped by 6% although since the data is from the disastrous month of March, investors overlooked the reading.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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