Australian interest rate futures remain the only global market to buck the prevailing trend. At a time when global money yields are creeping higher in anticipation of the withdrawal of emergency stimulus measures or an actual reversion to a normal level of interest rates, the Australian market is unwinding lofty expectations for yet tighter policy once again today as its central bank indicates a possible pause.
The trend towards higher bond yields continues unchallenged today. The U.S. treasury note market has reversed a month long tendency towards lower yields, which capitulated at a low point of 3.16% courtesy of the crisis at Dubai World. The $10 billion package from the oil-rich state of Abu Dhabi has helped lift the residual clouds while the growing fears over fallout from the downgrade of debt issued by Greece appears sufficiently confined to prevent a further gain in Eurozone government bond prices.
Eurodollar futures - Rising energy prices created a larger than scheduled rise in producer prices for November. The core rate rose 1.8% over October meaning its year-over-year increase gained 2.4% after a 1.8% gain the previous month. Excluding food and energy prices were contained to a 1.2% year-over-year increase. The report had a negative impact on rate expectations but yield increases were tempered by weakness in a further report showing manufacturing weakness in the New York state. The 1-year yield rose by three basis points to 3.58% with the March future testing 117-00. Eurodollars rebounded from an earlier five basis point decline by mid-morning, nursing losses of two ticks.
European short futures - The European rate complex maintained a negative bias despite a ZEW sentiment index indicating a tapering off in investor and analyst confidence about the economy looking ahead by six months. However, it's important to note that the recent positive data along with a continuous stock market rally infers that investors may be left wondering how things could improve. And so the report is not all bad in the bigger picture. March bund prices lost 22 ticks to 122.75 sending yields up to 3.20%.
British interest rate futures - A dose of inflationary pressure created losses for short sterling futures contracts of up to eight basis points at further dated maturities, while the March gilt future shed 31 ticks to see its yield rise to 3.88%. The government released the November consumer price index reading earlier today to reveal a larger than anticipated increase in price increases. The 0.3% month-over-month reading resulted in a 1.9% year-over-year pace of consumer price inflation. Futures expiring from June onwards rose at the sharpest pace as the yield curve ratcheted higher.
Australian rate futures -Australian 10-year yields dropped by one basis point to 5.5% after the minutes of the December RBA monetary policy meeting were released. At the meeting the central bank raised its benchmark rate by a third consecutive one-quarter point increase, while the minutes today revealed that the committee discussed not raising them meaning that the event was not a clear cut case. Further, the committee felt that by so doing in December it could have a greater deal of flexibility at future meetings. The rally in 90-day bills stands out as the only rally among leading nations shorter-dated interest rate futures today. Bills added four basis points driving yields lower as investors reduced the odds of a February rate hike from 80% to 66% today.
Canada's 90-day BA's are lower in price and higher in yield following government reports showing a 1.3% jump in its measure of leading indicators for November and almost twice the 0.7% forecasted gain. In addition a reading of new motor vehicle sales for October exceeded expectations with a 3.5% gain after a revised jump of 1.5% for sales during September.