British gilts – Short-term interest rate futures have bounced by five basis points from session lows following a cautious resumption to risk. An earlier government report illustrated the difficulty with trying to reduce a towering budget deficit in light of challenges to growth. A swinging-axe in the public sector coupled with sizeable spending cuts is the wrong mix to achieve a fiscal deficit reduction, but Chancellor Osbourne can only claim that he never dealt that hand of cards. Bank of England Markets Director Paul Fisher also delivered a dovish speech reiterating what Chief Economist Spencer Dale said over the weekend in that the economic engines could quite easily misfire. For his part Mr. Dale stated that further stimulus might yet be needed, which is something MPC member Adam Posen has repeatedly called for at the last year’s monthly vote. June government gilt futures conveniently filled the gap I pointed out yesterday to 120.92 sending yields ay the 10-year part of the curve up to 3.32%.
Australian bills – A rebound for commodity prices and a bullish call from Goldman Sachs claiming that China’s soft-patch for growth may soon be over spurred riskier bets and helped depress interest rate markets. Implied bill yields added two basis points as the region’s equity markets climbed and currency investors looked favorably on the local dollar. Bond yields in Australia added three basis points to close at 5.29%.
Japanese bonds – Japanese government bond prices remained firm, however, with dealers finding little enough reason to argue that yields would rise anytime soon given the lack of health within the domestic economy. JGB futures expiring in June slipped by just two ticks to 140.77 failing at 140.92 earlier in the day to close yielding 1.115%.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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