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Fixed Income Trading Strategies - July 5th 2004
Sept T-Bond gets a shot at 110-00 minimum; Sept Bund may reach 114.25 at least
Japanese 10-year bonds rose, driving yields to the lowest in two weeks, after exporter stocks slumped on concern shipments may fall following a report the U.S. added fewer jobs than expected in June.
DEVELOPMENTS TO WATCH TODAY:
- Japan's economic recovery is gaining momentum as it spreads to service companies from manufacturers and beyond major cities, Bank of Japan Governor Toshihiko Fukui said. ``The economy is gradually gaining momentum to return to the path of sustainable growth,'' Fukui said in a speech at a conference held at the bank in Tokyo. He said the recovery needs further momentum to achieve sustainable growth. The central bank pushed overnight rates close to zero by raising its target for reserves available to lenders in March 2001, aiming to stop deflation and support economic growth.
Bond Market Summary:
Japanese 10-year bonds rose today, driving yields to the lowest in more than two weeks, after exporter stocks slumped on concern shipments may decline following a report the U.S. added fewer jobs than expected in June. The benchmark 1.6 percent bond due in June 2014 rose 0.333 to 98.686 as of 12:31 p.m. in Tokyo. Its yield fell 4 basis points to 1.755 percent, after touching 1.75 percent, the lowest since June 16. Ten-year bond futures for September delivery rose 0.35 to 135.65.
The disappointing employment figure on Friday provided more fuel for the week long rally in Treasuries. The combination of weak economic data and reassuring FOMC language sent yields sharply lower earlier in the week. These two factors forces had investors retooling their expectations for the trajectory of interest rate increases. Fed Funds futures have removed a 25 basis point move by year end, which leaves the December contract looking for a 2% funds rate. The yield on the benchmark 10-year note hit a two-month low, falling eleven basis points to 4.45%.
- Sept 04 T-Bond - the contract has been to 108-30 and pulls back somewhat. But the rally should resume soon. We reaffirm the scenario -- the contract should accelerate higher and have a shot at 110-00. Further break of 110-00 suggests further moves to 115-00.
- Sept 04 10-yr Note - the contract rose sharply after the payroll data disappointed - the contract has been to as high as 111-01 and may push further to 112-16.
- Dec 04 3-mo. Eurodollars -- the contract has gone to as high as 97.705 and should push towards 97.85 further out.
- Sept 04 German Bunds - the contract rose smartly after the payroll data and has been to 113.86 -- the contract should advance to at least 114.25.
- Sept 04 German Bobl - the contract rose to 110.83 and should rally further towards 111.25.
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