Bond desks shudder after non-farm payroll

prices and as political gridlock provided little end to the wait for a fresh grand supply of bonds in order to finance the post-tsunami reconstruction of the nation. September JGBs declined by 16 ticks to 140.54 while the benchmark cash rate remained unchanged at 1.16%.

Canadian bills –Canadian bills of acceptance dipped in response to a stronger reading for Canadian employment during June when employers added 28,400 new positions. However, the yield curve later declined after the non-farm payroll report weighed on investors’ projections for global growth. Implied yields on bills slid by seven basis points and widening the range for the session to 13 basis points illustrating the policy bond the Bank of Canada finds itself in. Without the engine of growth south of the border purring at a regular speed, the Canadians are having a hard time gaining any traction. The Canadian 10-year government bond future rose to 125.26 for a 70 tick gain on the session leading the yield six basis points lower to 2.99%.

Australian bills – Aussie bill futures were unchanged overnight yet advanced by six ticks in response to the U.S. employment report. Stocks around the Pacific Rim continued to advance in light of growing confidence that the Chinese authorities are unlikely to raise interest rates any further throughout 2011. Central bank Governor Zhou Xiaochuan told an audience that China must not focus only on inflation but should also consider growth, employment and the exchange rate when setting its monetary policy. Aussie government bonds bled five basis points in yield to 5.13% in to the weekend.

British gilts – Short sterling futures were edging lower ahead of the U.S. employment report as dealers grew concerned that a positive reading would spark a further rally for risk that would dim the appeal of fixed income. Positive sentiment towards short sterling wore off despite a relatively friendly reading for producer prices where the monthly cost of goods leaving the factory gate fell to its slowest pace in nine months offering an olive branch between the doves and hawks at the bank of England. After the U.S. labor market data disappointment short sterling prices reached session highs where implied yields declined by up to 11 basis points at some deferred contracts. The September gilt future shot higher by 90 ticks lowering the yield by eight basis points to 3.21%.

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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