Thursday FX Interest Rate Monitor

Andrew Wilkinson submits: Bond traders continue to hope that when the Fed finally tells all on Wednesday afternoon, U.S. yields will keep falling. The presence of the Fed in the same room for those with a long fixed income position is a very comforting prospect and one that’s helped to keep yields pinned to the ocean floor.

Andrew Wilkinson submits: Global long ends are having a difficult time shaking off the recovery blues and yields are sticky to the upside, while bond prices are finding it hard to shake off tepid economic data. With the benchmark treasury note trading unchanged to yield 3.83% today, it has barely budged in the face of Friday’s weak reading for payrolls showing the loss of 85,000 U.S. jobs.

Andrew Wilkinson submits: The front end of the Australian yield curve took a bashing after a surprise decision by the central bank to tighten its monetary stance for the first time in six months. Short-dated bill prices crashed by 12 basis points as dealers rushed to lock-in borrowing costs.

Andrew Wilkinson submits: Bond investors turned bearish despite a miss on the headline U.S. number, as they looked beyond the blizzards to realize that jobs growth remains very much alive. A coincident report from Canada earlier in the morning also showed that employment growth was much stronger than was expected. The big takeaway is that the economy continues to roll forward; that was confirmed by rising yields and falling bond prices beyond the data.[Click to enlarge]

Andrew Wilkinson submits: The yield on the benchmark 10-year note surged to the highest since August following the fourth consecutive monthly gain for retail sales. The cost of government borrowing has continued to rise even after the FOMC laid out its plans for engineering conditions conducive to the business community.

Andrew Wilkinson submits: Medium-term bond prices accelerated on Thursday coinciding with the release of a report showing insufficient traction in the labor market would call upon the Fed to deploy the entire $600 billion bond-buying program it announced the day before. The FOMC statement pointed to the potential for the central bank to tailor its program over time to maximize the impact on achieving full employment and stabilizing prices.

Andrew Wilkinson submits: Fixed income trading got off to a blistering start in a week where news events are likely to determine the fortunes for bond prices for the remainder of 2010. The first in a series of critical surveys showed the Chinese manufacturing expansion continued and is likely to be followed by more of the same around the world extending also to the service sector.