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Daily Market Commentary

It finally appears we are seeing relief in the bond market from the 4 day bear flattening move we've had.  The good news?  Two year bonds are a lot cheaper, having popped up over 50 bps in the last few days. 

Now we have a positively sloped yield curve from overnight all the way out to the long bonds.  We would argue that the curve should be steeper if the inflation that the Bank of Canada is worried about is truly a long term problem, but the market has decided, for now, that ultimately the inflation problem will lead to easing in prices.

This makes perfect sense.  If consumers are spending all their money on gasoline and food, they will have less to spend on other goods and services.

Yesterday's surprise Bank of Canada move puts them in the same camp as Europe and the UK, fretting on inflation.  The statement however, could have read exactly the same had they lowered the rate by 25bps.  They are still worried about the economy being softer than they had anticipated, but inflationary pressures are a more immediate concern.

Our outlook now puts the Bank of Canada and the Fed on hold until new data breaks out in one direction or the other.  Let's keep in mind... 2.00% Fed Funds and 3.00% Bank of Canada rate are historically very low.  These rates should be low enough to stimulate some growth, if the rest of the financial sector plays ball.

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