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Daily Market Commentary

GMAC and part owner Cerberus Capital Management have agreed to inject $1.43 billion into ResCap, the beleaguered mortgage lender that GMAC bought interest in 2006.  GMAC itself, as you may know by owning some of their bonds, don't exactly have a cheap cost of capital either.  Being in the lending business is not paying off lately. 

Yesterday's ISM index was slightly stronger than expected, but not strong enough to put a damper on a strong bond rally in the Treasuries and Canada bonds.  A flight to quality helped this rally, as S&P came out and downgraded their outlook on the US financials, including Lehman, Merrill and Morgan Stanley.  ML and LEH were cut from A+ down to A.

Many are attributing the Canadian side of the rally to coupon and maturing money from the big June 1st payment date making its way back into the market.  The short end was favoured, and the curve steepened as the two year yield dropped to 2.87%.  Remember, it wasn't long ago that this yield was at 3%.  A crummy GDP report, a flat inflation report and some extra cash was a recipe for participants to bet on more BoC rate cuts, once again.  The flip flop continues.



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