Monday, March 1, 2010

Bond prices are a little easier to begin the week with a stories of a potential solution to the problems facing the Greek government as it considers issuing bonds to replace forthcoming maturities. A strong reading for fourth quarter Canadian growth also sent bill prices down sharply as investors mull the impact on decision making at the central bank.

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Eurodollar futures - Futures prices are lower by a tick from December outwards - but given the recent curve flattening seen last week, this is minor news. The December contract has an implied yield of 0.81%, while a four tick drop in March notes lifted the 10-year yield to 3.62% today.

European short futures - March bunds are 11 ticks lower at 124.33 where the yield stands at 3.11% and still extremely close to cycle lows as Euro-tension remains in place. The rumored German proposal to have state-owned banks buy Greek government debt that fails to find natural buyers may steer a course between German politicians and tax payers given the potential for what could become an underwriting process that lessens the cost of debt and allows the taxpayer to actually profit from the deal.

British interest rate futures - There was a day when pressure on the pound would force interest rates higher. The implicit rule-of-thumb was used by traders to measure the effective easing in the overall monetary stance when the pound shed its value. But that's not the case these days - at least not for today - and short sterling is down in line with euroibor futures. March gilts are, however, facing a tougher time staying afloat and are down 23 ticks on the day at 115.33 to yield 4.07%.

Australian rate futures -10-year government bond prices marked time ahead of Tuesday's interest rate decision from the RBA with the yield static at 5.42%. Some of today's positive sentiment was lost when China's PMI revealed the slowest pace of expansion in a year. Its PMI read 52.0 for February after 55.8 in January.

Canada's 90-day BA's - Bills dropped significantly after a 5% annualized pace of expansion for the fourth quarter. Futures prices from December out are six ticks lower as yields rise for fear of a sooner-than-expected rate rise from the Bank of Canada. Bond yields rose to 3.41%.

Japan - JGB future declined by 14 ticks to yield 1.30% after a government official again suggested that the Bank of Japan do more by buying bonds directly to lower yields and spur recovery. .

Andrew Wilkinson