Eurodollar futures – It seems unlikely that Eurozone turmoil is responsible for the pullback in U.S. store sales. Weaker gas prices for one created one category of weakness while a cursory glance also shows that building materials sales fell after two previously strong months. Nevertheless, U.S. notes are higher by a half point futures-wise with the September contract trading at 120-11 to yield 3.26%. Gains for Eurodollar futures are accelerated at further maturities.
European bond markets – Markets bounced on the weakness in U.S. sales with the September German bund market jumping 36 ticks to 129.04. The rebound follows an upbeat view from the ECB on Thursday during which they promised to remain supportive of financial assets and institutions.
British gilt – Gilts are 61 ticks higher at 119.36 in the September contract although short sterling futures are making smaller advances as implied yields decline just two basis points. The 10-year yield slid to 3.50% as investors figured today’s poor manufacturing output reports coupled with forthcoming budget cuts needed to rein in the public deficit were a bad mix.
Japanese bonds – Japanese yields remained higher by three basis points after a Bank of Japan report failed to dumb-down growth expectations. The 10-year yield jumped to 1.217%.
Canadian bills – The pace of the yield decline in government bonds was half that of the U.S. The 10-year bond rose by 35 pips to 120.63 where the yield fell to 3.39 with the spread over treasuries now widening to 14 basis points.
Australian bills – The Aussie bond market fell after China’s inflation data fanned fears that the Chinese may act to cool growth further. Yields on 10-year government bonds rose five basis points to 5.39%.
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