Global long ends show no signs of setting the world alight midweek with note futures down only slightly in the U.K. and U.S., while German bunds and Aussie government notes are up by about as much. All around there is little impetus from today's widely awaited U.S. new home starts and consumer data. Static 10-year yields belie the growing acceptance of an extended period of low interest rates, which countless central bankers continue to emphasize. On Tuesday it was the turn of Cleveland Fed President Sandra Pianalto, who described the path to recovery as gradual and bumpy.

Following a weaker than expected housing starts report that showed 529,000 annualized home starts compared to an expectation of 600,000 units, the yield at the 10-year area of the curve remains at 3.35% with note futures down marginally on the session. The greenback is actually rallying on the back of today's data, which smacks of greater risk aversion. Only if investors start to feel that this is a return to economic freefall rather than a simple tempering of activity on the other side of the depression will the euro/dollar pairing break out of its $1.48 to $1.51 recent range.

Eurodollar futures are little changed along the strip this morning with the in line CPI rising 0.3% hardly challenging any argument about price stability. The March Eurodollar future last traded at 99.64 to yield 0.36%. The curve is neither bending nor stretching today after recent gymnastics and the two-to-ten year remains at around 260 basis points with the two-year yielding around 0.75%.

Short sterling prices were off to the races following the November MPC minutes. The headline story from the U.K. is a three-way split in members' voting intentions, but all said and done the apparent rift is no big deal either way. Sterling interest rate futures rallied sharply in the aftermath of the report, which gives an insight into the bias of policymakers. The minutes showed that one of its members viewed any expansion of the Bank's bond buying scheme as worrisome in that it might create an asset bubble, which could at a later date become challenging to remove. In light of Mr. Bernanke's comments in New York earlier this week, we wonder out loud how this view will be discounted going forward by the market.


Another member argued for a £40 billion addition to the plan while the result from the majority was a £25 billion boost to expand the asset purchase scheme to £200 billion. Don't forget that coming right back to comments from Andrew Sentence this week, policymakers retain an 'open-mind' on further purchases.

The real interest rate driver out of the minutes was that the committee addressed a plan to discourage banks from maintaining reserves with the Bank of England as the MPC considered lowering the deposit rate. This would drive down short-term money market rates and exert pressure on lenders to perform their role as providers of credit. The potential from such as strategy means that the MPC wants to consider this as a plausible tool that could in future be applied. Along with that prospect, short sterling futures markets pointed to lower rates because the MPC discussed the expansion of the purchase plan in conjunction with worries over weaker near-term prospects for the British economy.

What the market maybe overlooking today is that the minutes revealed that although members gave a thumbs-up to further bond purchases some raised concern that by so doing they might bring forward the date when stimulus measures might need to be addressed. Currently, market discussion on exit plans is a moot point given the global curve flattening underway encouraged by constant reference to extended periods of easy monetary policy. The pound cheapened a little on the news compared to both dollar and euro and investors so far have failed to consider the potential for what the MPC hinted at within the minutes.

European interest rate futures are again marginally lower in price with no data to support any impetus. The June expiration is trading at 98.92 implying a yield of 1.08%. December German bunds are currently up two pips at 122.25. Today's high matches that of Tuesday at 122.34 and a break here would leave investors looking to the October peak at 123.03.

Australian rate futures rose again with investors continuing to jostle for position ahead of the December meeting of the Reserve Bank, where the next interest rate rise is heavily under question. Investors had priced in a tremendous amount of tightening over time and now that monetary policy is being lifted, investors are reacting to fluid data as they examine those rate rises already baked into the cake. June 2010 futures prices are up another two basis points today with the yield slipping to 4.96%. To put today's pricing into perspective just one week ago the contract reflected a yield of 5.25%.

Canadian bills of acceptance (BA's) are still trading to the downside at the deferred contracts with new-term prices unchanged. The March 2010 expiration is trading with a 0.48% yield with the curve shape largely unchanged on the day.

Andrew Wilkinson