An opening rout for the single European currency has delayed resurgent U.S. yields from delivering a significant impact on those of the Eurozone after the long Easter weekend. A widely-carried media report states that officials in Greece are slowly learning of the stringent measures that might leave its financial system in a straight jacket if it accepts the terms of the IMF portion of bilateral aid. Unconfirmed market rumors say that the Greek authorities are growing increasingly concerned over the consequences of civil and social unrest. The spread between U.S. and German benchmark yields has subsequently widened as investors focus on rebounding growth in the U.S. and the ramifications of a political stalemate across the Eurozone.


Eurodollar futures - At its widest point today the U.S./its widest point today the U.S./Germany spread reached 89 basis points. A slew of positive economic news during the Easter period has helped send bond yields to the highest point in 10 months. However, weakness in equity futures and a sour tone towards European activity today has afforded June note futures some leeway. The contract added 13 ticks to stand at 115-13. Gains were also seen after two days of weakness for Eurodollar futures where deferred contracts rose by as much as six basis points allowing yields to decline. Nearby contracts added three basis points. U.S. 10-year yields have calmed to 3.94% this morning.

European bond markets - Bunds were trashed on the open and slid to 122.54 within minutes. However, the resurgence of bad news in the form of a scare story claiming Greece has grown cold on IMF aid helped return investors to the safety of bunds allowing the June contract to reach 123.18 by the time U.S. equity markets opened for business. Yields rose by only three basis points to stand at 3.12%. There was minimal impact from an ECRI release indicating a build in future inflation pressures among the largest Eurozone nations. Officials from the IMF are scheduled to visit Athens as early as Wednesday, but there is nothing written in stone to suggest the market will get any kind of update as a result.

Japanese bonds - The first government auction of the new fiscal year attracted a sufficient 2.5 times bid-to-cover ratio to assuage investors' fears that the recent rise was nothing more than an opportunity to find value at mid-curve maturities. Although June JGB futures fell to reflect rising yields in the U.S. time zone, pension funds stepped to lock into yields at near four-month highs. A rebound in the yen and a reversal in earlier gains in the stock market helped encourage bond buying. June futures fell 30 ticks to 138.15. Yields at the 10-year government bond rose two basis points to 1.39%.

British gilt - Short sterling futures are well off their lowest prices of the day, with the March 2011 expiration rebounding from a 98.55 low (1.45%) to stand at 98.60 (1.40%). This morning, British Prime Minister Gordon Brown announced dissolution of Parliament on April 12, in preparation for a May 6 general election. Some element of political risk emerged this morning with an ICM poll suggesting a halving in the lead of the opposition Conservative party. However, the poll still conflicts with equally fresh polls confirming weekend results indicating a double-digit lead that would be enough to allow the Conservatives to form a majority government that would allow it to deal with the ugly fiscal deficit. June gilt prices reached a low shortly after the opening bell on LIFFE at 114.21 only to rally back to 114.62 for a 37 tick intraday decline. Gilt yields added five basis points to stand at 3.97%.

Australian bills -The RBA raised benchmark interest rates by a further quarter of one percent to stand at 4.25% today. In stating that the ongoing housing market remained intact having recently flagged this as a potential cause for concern, the RBA has left the door open for further remedial interest rate medicine. The central bank continues to point to below average rates facing consumers. Bill prices thereby resumed a downwards trajectory in response with losses of between six and nine basis points across the strip. Aussie bonds added six basis points to stand at 5.83%.

Canadian bills - An appreciation in the Canadian dollar underscores the success of stimulus efforts from government and its central bank. Today it finally reached parity with the greenback as the commodity market continues to sense expansion remains the order of the day regardless of antics within the Eurozone. However, the Canadian government bond matched yield declines alongside the U.S. treasury note while the June futures contract rose by 19 ticks to 116.74. Bill prices added one or two basis points. The 10-year bond lost two basis points in yield to stand at 3.65%.

Andrew Wilkinson