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Eurodollars close out 2009 on a sour note
Thu, Dec 31 2009, 16:10 GMT
A positive end to the calendar year in the form of lower
claims for unemployment insurance has left the U.S. government bond market
nursing losses as evidence mounts that it won’t just be champagne flowing into
the New Year. The improving economic tone looks certain to improve in the first
quarter of 2010 sending expectations higher for a change in the policy settings
from the Fed. At this stage of the game there is little point in trying to
assuage investors that the Fed won’t shift policy anytime soon – which it won’t.
The bleeding wounds of capital losses on bonds are evidenced by a one month
surge in yields in the last five weeks from 3.15% to 3.89%. Yields are ending
the year within a single bad session of reaching the 4% peak witnessed mid-year
when investors first panicked about a change of heart from the
Fed.
With European markets already closed for New Year
celebration there is a lack of newsworthy material and price action to report
other than in the dollar complex.
– March t-notes made another lurch for the lows and are currently trading at
115-06 for a 3.87% yield. Eurodollar prices lurched lower by four to nine basis
points across the curve with heavier losses at later maturities. The 432,000
initial claim data ran counter to the expected reading of 460,000, which would
have been a rise on last week’s revised 454,000 claims. Next week will surely
see weaker bond prices still as investors brace for the first reading for
non-farm payrolls next Friday. After a staggering loss of just 11,000 jobs in
the November report, analysts currently predict neither gains nor losses from
next week’s report. Preparation for another sign of confidence for consumption
will surely see yields reach 4% ahead of the report.
European
short closed with minor losses of between three and five ticks.
March 10-year gilt futures rose sending yields down – this
will most likely be reversed when markets open on Monday as investors react to
heavy treasury market losses.
–Aussie bonds rose sending yields down to end the year
at 5.62%. Bill prices saw modest gains of about four ticks.
Both bills and bonds are
lower in response to the decline in Eurodollar futures prices. The 10-year
government bond rose two basis points to yield 3.63%.