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Market Commentary

Canada - Economy and Fixed Income (Jamie Price):  The bond market continues to look pretty ugly.  While bonds held in OK following the PPI numbers yesterday, they just faded away all afternoon and ended the day quite a bit lower.


There's plenty of data this morning, most of it coming out bond neutral or bearish.  CPI in the US came out as expected in the core, but ticked up slightly in the headline figure.  Housing starts and building permits were unexpectedly strong as well, and jobless claims fell.  All this news adds up to lower bond prices. 


The 2 year is approaching 5% in the US as the market adjusts its Fed rate expectations upwards.  There are still no rate HIKES priced into the market (nor would we expect any), but the timing of cuts, which were expected in the second half of 2007, are starting to look suspect.  All in all, while inflation is remaining sticky, it still looks like we're living in a DIS-inflationary world.  Over the longer term, this should be bullish for bonds.... just don't tell a trader that this week!


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