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Daily Market Update

As we reported on the Blackblog yesterday, traders continue to take Fannie Mae and Freddie Mac debt down, trading it as if it was single A rated, rather than AAA.  Chatter continues in the media that they will need to raise capital, and the shareholders will be hurt in the meantime.  Credit Default Swaps on FNMA and FHLMC have more than double recently.  Keep in mind, they are still trading around 75 bps, so the cost of insuring $1 million of Fannie bonds is $7500.  That's still not a lot (Citigroup is at 131 bps), but certainly not AAA level.

  Other than this type of news, the market has been dead.  We haven't seen a corporate new issue in Canada for more than two weeks.  The ten year Canada bond has traded within a 1 point trading range for almost a month.  Besides some supply issues in the treasury bills, we are fully into summer trading.

Canada housing starts remained strong, once again for June coming in at 218k compared to May's 227,700.  The number is slightly lower, but just above the average estimate of economists.  The housing market is still holding up well despite the carnage south of the border.  More conservative lending practices hear in Canada have gone a long way to protect our market from any real declines so far.  Regionally, the gains were widespread, although Ontario was the only province to show a gain over last month's starts.



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