Bonds left guessing after initial claims and Philly Fed

Canadian bills – Dealers raised the implied yields on bills of acceptance futures by a tick or two ahead of Friday’s eagerly anticipated retail sales and inflation data. The recent slide in commodities has redefined the horizon on inflation across the globe and expectations for further monetary tightening from the Bank of Canada have been sharply reduced in the last several weeks. Before the market moves to further narrow over the U.S. yield curve where an onset of tightening remains difficult to pin down, dealers need to see further evidence of a tepid retail demand and inflation backing away from the top of the Bank’s target range. Ten-year government bond futures are well off the session low but remain lower by 21 ticks at 124.10 to yield 3.22% and as such remain higher yielding than Treasury notes.

Australian bills – A firmer Aussie dollar in the Asian session and buoyant equity markets helped by affirmation that the timing of the Federal Reserve’s reversal of policy stimulus remains best measures in quarters rather than months, soured domestic credit markets. Although the benchmark government bond yield was unchanged at 5.33% the implied yields on shorter dated three-month money jumped by four basis points. A February weekly wages report indicating wage growth remains of little concern to the central bank’s attempts to control inflation was outweighed by the implications of ongoing stimulative monetary conditions around the globe.

Japanese bonds – Japan’s third recession in a decade was confirmed with a second quarterly contraction. Both fourth quarter and the latest first quarter data confirmed what Bank of Japan Governor Shirakawa phrased this week as a “desperate state” for the domestic economy. The latest 3.7% slump followed a downward revision to a 3% contraction through December 2010 and reinforced the maintenance of the central bank’s provision of ample monetary stimulus. Bond traders figure that supply will therefore remain higher than ever and turned their noses up at today’s five-year auction. Yields rose across the curve with the 10-year bond trading at 1.145%.

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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