Bond yields in flux

British gilts – The FTSE 100 index of leading stocks earlier fall by 2.3% was eradicated before selling resumed. The mid-morning reversal for U.S. stocks seemingly in response to a market rumor that the U.S. might face a weekend ratings downgrade is partially behind the onslaught of the more bearish tone. Short sterling futures have moved back towards session highs and have made daily gains of six basis points driving the yield curve ever-flatter. Meanwhile gilt futures expiring in September are heading back towards unchanged on the day in an attempt to build on seven-straight gains, which has the contract trading at 126.56 where the yield sits at 2.74%. Earlier on Friday the contract had surged driving the yield to yet another record low at 2.55%.

Japanese bonds – It’s still no time to ditch the safety of government bonds say Tokyo-traders despite the recent effort by the bank of Japan to alleviate some of the steam in the rice-cooker. The 10-year yield eased to 0.997% to close the week while Japanese stocks nursed a closing loss of 3.7% on Friday. June’s coincident index rose to 108.6 while the leading index also rose indicating that measures taken to help heal the economy after a March-earthquake were working. But there seems little the Japanese can do to fight off debt crisis elsewhere in the world.

Canadian bills – The net addition of 7,100 new jobs across the Canadian economy was half the expected pace, but with the dip in the rate of unemployment to 7.2% and the improvement in the U.S. labor market adding to positive sentiment, bill prices remain just about unchanged on the day. Government bonds this week moved to a discount relative to treasuries as demand for Washington paper leapt in light of rising risks to global growth. The discount failed to come in by more than two basis points in Friday’s action with the 10-year Canadian yielding 2.55%.

Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

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.

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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