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Daily Market Commentary

A quiet start to the week as there is no data out this morning.  Bonds are trading higher, however, as Greenspan commented in an address that the US economy wasn't out of the woods yet...  Both Treasuries and GoC's are trending higher this morning after Friday's losses.  This trend is continuing, with bond markets trading with no particular convincing direction.  We are still towards the higher yield-end of our anticipated trading range, so we would expect bond prices to slowly make their way higher in the absence of any convincing data in one direction or the other.

  Fed Funds Futures are showing about a one third chance of a rate cut by August, and one year out a rate cut is fully priced in (see Daily FI snapshot chart).  Keep in mind the yield curve inverted in June of 2006 (based on 10's minus 2's) and has been since...  this is an indicator that has predicted 9 out of the past 7 recessions 6-18 months following the first inversion.

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