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Daily Market Commentary

Ahead of the data, Bonds are final showing some relief this morning after days of declines.  Canada is showing typically less volatility, and while still up, are only mildly so.

Canadian bonds still look very expensive compare to other G7 yields.  Take this comparison of worldwide yields:

Britain - 4.95%

France - 4.58%

Germany - 4.40%

Italy - 4.84%

Japan - 1.74%

USA  - 4.04%

Canada - 3.70%

Outside of Japan, we have by far the lowest yields in the G7.  Perhaps some of this is due to low reported inflation thanks to our appreciating currency, but this seems unlikely to explain all the out performance. 

Argentina is looking to its creditors to reschedule some debt.  The 2nd largest South American economy wants out from the punitive payments it is making on $6 billion of debt it defaulted on in 2002, in order to attract new investment.  Argentina is an agricultural powerhouse - they shouldn't be having any trouble attracting investment these days...  perhaps it is the government's interventionist policies and heavy agricultural taxes? 

Canadian GDP - Came in way lower than expected, printing at -0.3% (annualized) for Q1.  To make matters worse, raw materials prices rose 5.1% over the month (2% was expected).  These numbers are pretty ugly for Canada... perhaps our economy, which has remained resilient in the face of a very weak US consumer on whom we rely so heavily, is finally showing some signs of breaking.

US Personal Income and Spending - came in line with expectations, showing modest increases over previous months.  PCE was also in line with expectations.  This measure of inflation has always remained more muted than CPI (perhaps this is why the Fed chooses to watch it more closely?)

Canada bonds are steepening on this news.  Two year Canadas, which have gotten creamed recently (rising 50 bps in the last 6 weeks), are trading higher as the pendulum swings the other way.

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