Bonds Shrug Off Risks, Dollar Higher

A better tone on Ukraine pushed up Treasury yields after all parties agreed separatists would exit government buildings. USD was the top performer while NZD lagged. The day ahead is likely to be extremely quiet with many markets closed for Good Friday.  

A prevailing school of thought headed into the weekend was that risk trades might suffer on fears of a Ukranian flare up over the long weekend. Instead, leaders emerged from four-party meetings with a conciliatory tone. The largest impact was in the Treasury market where 10 year yields moved up 9 basis points – the most since the FOMC decision on March 19.

Higher yields fuelled US dollar buying across the board. The correlation with yields and USD/JPY is notable and with Kuroda opening the door to further easing on Thursday, the upside is considerable. Dollar buying was also supported by the Philly Fed at +16.6 compared to +10 expected. Initial jobless claims were at 304K versus the 315K consensus. Most of this week's economic data was dollar positive, especially retail sales and CPI.

The euro was particularly soft after Mersch warned of the growing likelihood of cuts due to the higher euro and a Reuters source said Weidmann was open to QE in the right circumstances.

One currency that kept pace with the US dollar was the loonie after Canadian CPI was higher than expected. It's the second month of strong inflation numbers and talk of rate cuts is dwindling.

The key for the next stage of growth in North America is business investment. Corporate earnings are a spot to watch and so far it's a mixed bag as companies continued to wait for better signs of growth before putting cash to work.