An early respite for bond prices ahead of the Christmas weekend break was short lived following the release of data suggesting corporate optimism into 2010. Weekly jobs and durable goods data both smacked of an improved tone and helped maintain the pressure on bond prices elevating bond yields to four month highs.
An upwards revision from a U.S. investment house for growth prospects for China highlighted the fact that the nation’s trade surplus may narrow in the event that it continues to suck in imports. Such signs of ongoing recovery are rather welcome heading in to a new year, and investors are jumping all over Asian and European equity prices in hopes of getting in early on the act.
Weekly U.S. jobless claims at 452,000 through last weekend was a pleasant surprise for the market and comes in 28,000 short of the projected estimate. Once again, a reading beneath half a million is a welcome one if the labor market is going to thaw as we all hope for in 2010.
Durable goods orders while a little lighter than predicted offered a silver lining in the form of a strong reading of ex-transports orders, which came in at a 2% pace of change and twice the expected value. Because this erratic report relates to demand for goods with a longer life span, they offer optimism for returning demand from companies as the economy turns the corner.
Eurodollar futures – The data in both cases was bearish for yields and Eurodollars are now down three ticks in response to evidence of a stronger economy. The March 10-year note future has subsequently slipped beneath Wednesday’s low and is now down six ticks to 115-30 carrying a yield of 5.77%. Yields have risen this week to a four month high while the 2s10s spread has widened out to its highest ever at 286 basis points. This suggests that investors anticipate higher levels of inflation to accompany a strengthening economy at some point. Bond prices are also easier today given the fact that the government will issue $104 billion of two, five and 10-year notes next week. Don’t be surprised if this week’s rising yield environment encourages a warm reception for government debt at auction. No one yet thinks the Fed will raise rates imminently, but as ever, the market isn’t likely to wait around for the paint to dry.
European short futures – Europe is now closed for the weekend and while London traders are present to trade euribor the action is uneventful and as no driving forces. Euribor futures are down three basis points while the bund contract is closed.
British interest rate futures – 10-year gilt yields rose to a six month high at 4.03% this morning on very little news. The pound attempted a rally but just couldn’t get through the day with a smile on its face. Short sterling futures are easier by a tick.
Australian rate futures –Aussie bonds rose in yield terms by three basis points to stand at 5.56%. 90-day bills edged in the opposite direction by a tick.
Canada’s 90-day BA’s - Bills are lower by a tick while the Canadian government bonds are lower at the 10-year to yield two basis points higher at 3.59%.