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Daily Market Commentary

FT is reporting this morning that the European junk bond market has basically come to s stand-still in 2008.  Globally (meaning in the US, where the vast majority of junk is issued) issuance is down 60% vs. this period last year.  Only $43bn of junk bonds have been issued so far this year.

This will put increased pressure on the issuing companies as they need to mature and refinance their paper.  The banks who provide them financing, and who themselves are under considerable strain, will have to step in with short lines of credit in order to bridge the gap until investors come back to the sector.

  This does not bode well for the financial backers of the Bell deal, who will need to sell about $20bn worth of junk to pay for the deal.  Deutsche, Citi, RBS and TD will have to get on their sales wagons and peddle this debt big time. 

For the technicians out there, the Canada 10 year moved convincingly through its 200 day moving avg yesterday and continues to move lower this morning.  This is affecting the whole curve, as it has only gotten moderately steeper over the past few weeks.  10 year to 2 years is now 65 bps in Canada (see chart) 

Canadian CPI hit the tape this morning, surprising to the high side on the headline, and in line with last month in the core.  3.1% year-over-year inflation in Canada is still being kept low thanks to the strength of the loonie (US headline CPI is 5.0%).  The core remained at 1.5%.  This number furthers our belief that the Bank of Canada will remain on hold here with 3% overnight rate, as the inflation and economic outlooks appear to be pulling equally in each direction.

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