The Day Ahead: G7 Tackles Yen. Stocks Rally. Bonds Sell

An agreement among the G7 group of finance ministers and central bankers to intervene against the rising yen helped calm global markets last night.

"Each of the G7 members will sell yen as their markets open Friday," said economists at BMO Capital Markets, who say the yen has already tumbled 3% as a result.

"This is the first currency intervention of the G7 since 2000 when it moved to support the euro, but it's not a surprise" said MND's Adam Quinones. "We've all gotten used to the government intervening in financial markets."

Stock futures rallied on the news and  Treasuries sold off, but optimism was tempered as tensions intensified in Libya and Japan.

Reuters reports Japanese engineers conceded on Friday that burying a crippled nuclear plant in sand and concrete may be a last resort to prevent a catastrophic radiation release, the method used to seal huge leakages from Chernobyl in 1986. Also in the news, Reuters reports the United Nations authorized attacks on Muammar Gaddafi's forces, as he vowed to crush Libya's revolt with "no mercy, no pity" and rebels pleaded for military aid before time runs out. French sources said action could follow in hours, and could include France, Britain, possibly the United States and one or more Arab countries.

S&P 500 futures are trading 10 points higher at 1,278.75 and Dow futures have picked up 86 points to 11,797. The upward trend follows a mixed session yesterday when the S&P 500 remained flat but the Dow jumped 161.3 points, or 1.39%. The week will still end badly though: the Dow remains down 2.24% since Monday, while the S&P has fallen 2.34%.

Stock markets are rising across the globe. Shares in Japan rose 2.72%, while Chinese stocks rose 0.42% and Hong Kong shares finished 0.07% higher. In Europe, stocks are up roughly 1%.

Light crude oil rose 1.57% overnight to $103.01 per barrel while gold prices moved 1.41% higher to $1,422.22. 

BMO attributed the rise in gold prices to the U.N. Security Council voting 10-0 (with 5 abstentions) to establish a no-fly zone over Libya. The council said it will authorize "all necessary measures" short of occupation to end strikes against civilian populated areas.

The benchmark 10-year Treasury firmed two basis points overnight to 3.23% but is currently weakening as stocks bounce higher. Benchmark 10s are -8/32 at 102-27 yielding 3.286%. The 2s/10s yield curve is 2bps steeper at 269bps wide. 10yr swaps are 25bps tighter. And FNCL 4.5 MBS are -3/32 at 102-11. Loan pricing should be worse today.


Key Events Today:

10:15 - The Federal Reserve will purchase an estimated $1 to 2 billion in Treasury Inflation Protected Securities maturing between 4/15/2013 and 2/15/2041