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Daily Market Commentary

The government gave us something to think about over the weekend as Flaherty has moved to end the way government agencies are funded.  He is proposing to consolidate all the debt under the Canada banner.  This will eliminate the agency new issues (a kick in the pants for the banks who underwrite these zero risk bonds and get paid fat trailers), and make the current agencies more attractive for the time being.  It will, however, save the government a pile of money.  Agencies have typically traded 5 to 12 bps over Canada bonds, a spread that will disappear.

 

  Bonds this morning are trading slightly lower on little data (except for the strong Dow and S&P futures).  Canadian wholesale sales dropped significantly from last month which is allowing our market to outperform the US.  This is contrary to the trend we've seen since the start of the year, as the spread between our and the US 10 yr bonds has narrowed from 70 bps down to the current 50 bps.

 

Watch this week for the FOMC rate decision, pretty much a lock at remaining at 5.25% (kind of like my lock pick of
Ohio St.
to win).  Also watch Can CPI tomorrow, expected to be well towards the low end of the BoC's target band.

 

 

 



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