Bond appetite dulled by hopes for Athens vote

Canadian bills – Implied yields expressed by bill futures trading in Montreal rose by three basis points as dealers continue to price out further rate increases on behalf of the Bank of Canada. The strip suffered by less than the dip in Eurodollar futures, but the cooler global economic forecast continues to dim the prospects of rate increases already baked-in to the Canadian curve. The Canadian 10-year government bond future shed 39 basis points as dealers sold bonds around the world and lifted the benchmark yield to 2.93%.

British gilts –With only minor economic reports on the calendar on Tuesday (GDP was a rehash of earlier data) investors had little choice but to join the selling witnessed by other fixed income markets. Bank of England MPC member Adam Posen trashed an earlier BIS report calling for inflation-fighting monetary tightening as “nonsense.” On a normal day his argument pointing out low underlying inflation in the face of an official pace running at twice the mandated ceiling might have spurred a rally from the dovish trader community. However, the hawkish element is in ascendancy today as interest rate expectations take a knock on hopes for a positive Greek vote. Short sterling futures fell by up to eight basis points, while the yield on the 10-year gilt jumped by nine basis points to 3.25%.

Japanese bonds – Yields remained static on Japanese government debt with the cost of government borrowing for 10-years at 1.08%. Dealers were wary of relinquishing the safety of bonds ahead of the Greek vote despite some positive economic news. A measure of confidence among small businesses rose from 37.8 to 43.1 in June indicating a rebound in demand. Despite a rebound for Tokyo-listed stocks yields remain close to the lowest in seven months.

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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