The major catalyst in government bond markets has come not in response to the outcomes of various central bank meetings in Europe, but instead from the United States where a private report showed an unusually robust reading of jobs growth. Government bond yields marched higher but more notably so in the world’s largest economy with dealers now hopeful that the underlying anemic tone to the labor market will suddenly improve in an official government report on Friday.
Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/p.php?f=daily_analysis#bond-clear
European bond markets – The European Central Bank lifted its benchmark rate to 1.5% as was widely expected on Thursday with all ears honed on the highly anticipated post meeting press conference. Euribor contracts are higher in price and lower in yield by a couple of basis points as investors anticipate that the prospect for further tightening has diminished in light of a global economic slowdown and a prediction that consumer price inflation will head back below the central bank’s target within a year. German bund prices dipped and felt the weight of a U.S. labor market indicator offering the prospect of an upswing in the recovery. The September contract fell to 126.18 for a loss in the session of 34 ticks sending the yield higher to 2.95%.
Eurodollar futures – The spread between U.S. and German 10-year government debt widened further to 20 basis points as Treasuries underperformed after a surge in payroll additions according to ADP. The payroll processor said payroll growth among private employers rose in June by 157,000 and more than twice a market forecast of 70,000 jobs. Concerns over the health of the American job market run deep as Fed officials constantly remind us and with the rate of unemployment stuck at 9.1% that’s unsurprising. Treasury prices slid in response to the strong reading Thursday and dealers now look set to remain cautious ahead of the release of the official report on Friday. Initial claims data, however, told another story. Although the weekly claims reading slipped to 418,000 to give a dip of 14,000 through the weekend, last week’s data was revised higher. Eurodollar futures took back recent gains as concerns over a double-dip recession receded. The implied yield on deferred contracts rose by 10 basis points.