British gilts – British interest rate expectations firmed with investors taking their tone from a firmer tone across Europe. Hopes that the Eurozone’s peripheral crisis may be entering a final phase dulled interest rate expectations sending implied yields higher by a couple of basis points. The September gilt futures contract eased by 15 ticks to 119.99 sending the yield higher by four basis points to 3.30%. Government data showed an April rise in home prices of 0.8% leaving them lower by 1.3% from a year earlier, further weighing on interest rate expectations.
Australian bills – A strong risk-on rally that rebooted the equity markets across the region failed to shift interest rate expectations in the Australian market. Implied yields rose by a single basis point although government bond yields responded with a five basis point increase to 5.23%. Home prices fell by 0.3% during April while softer building approvals data also kept a realistic handle on monetary policy expectations. Approvals dipped by 1.3% leaving year-on-year data pointing to an 11.5% loss. Private sector credit remained flat during the same month.
Japanese bonds – Government bond yields rose by the most in eight weeks as JGB futures slid by 30 ticks to close at 140.61. Construction orders rose by 31% compared to a year ago, while data showed housing starts rose by 0.3% during April. Intentions across manufacturers show an 8% increase this month followed by a 7.7% increase for June, with some analysts pointing to the fact that if expectations are met, it won’t be long before manufacturing is running at pre-earthquake levels. The 10-year government bond yield rose to 1.15%.
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.