Australian bills – Fascination with the Aussie yield curve continued after the Reserve Bank provoked fears that its earlier growth estimates may have been a little on the high side. Investors continue to fret that the next move for Australian monetary policy might be downwards in light of further contraction in the service sector and fears that Chinese authorities might strike to combat inflation as soon as this weekend. A Beijing newspaper forewarned that the central bank might lift interest rates after hours on Friday further dampening domestic demand across Australia’s biggest buyer. The implied yield on bill futures dropped by five basis points as dealers bet that the central bank is heading towards dropping rates. The benchmark government bond yield slid by as much to close yielding 5.17%.
Canadian bills – The Canadian curve flattened by a couple of basis points on Tuesday with sellers driving the implied yield on 2011 contracts marginally higher as buyers drove down implied yields across later contracts. Government bond futures fell by 13 ticks adding one pip to the 10-year yield at 3.08%, which remained five basis points cheaper than comparable U.S. Treasuries.
British gilts –Sterling futures rose despite optimism among traders over the economy following an upbeat PMI services report. The June reading moved in the opposite direction to expectations indicating a marginal improvement in the services component of the economy. Implied yields eased by around three basis points while the September gilt futures contract surged by 30 ticks depressing the yield by four pips to 3.32%.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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