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Daily Market Commentary

The real market value of a bunch of less-than-desired mortgages is being discovered in the US right now, as Merrill has seized the CDO's (Collateralized Debt Obligations) of Bear Stearns hedge funds and is attempting to sell them off.  As late mortgage payments and delinquencies rise, the security of these CDO's is coming into question.  This has the bond market on edge as participants are also trying to find a way to hedge the risk that they pose (can you short a house???)

 

  While this has been filtering into the market and pushing treasuries lower for a couple of days, Canada's retail sales followed the lead of Wholesale sales yesterday and disappointed the market.  Remove autos and retail sales were flat month over month, a huge decline from March's 1.1% gain.

 

US jobless claims rose as well (and last week's data was revised upward).  These weren't big numbers, but employment is very important lately to give us indication on the direction of inflation.  Bonds, which were lower before these reports, are now slightly higher on the day.  The benchmark 10yr Treasury yield is currently at 5.12%, and 4.62% in Canada

 

The CAD$ is the loser in this report.  After trading down slightly yesterday, it's about half a penny lower on the sales numbers.  We'd still expect a pause in the CAD$ rally here, as sentiment has gotten overly bullish.  The possibility of a made in Canada telecom merger as well takes a lot of potential CAD$ buying off the table from foreign takeover partners.

 

Bell and Telus bonds are also trading higher on these prospects.  This alternative would be great news for the bond holders, as the two are far less likely to ratchet up the leverage in the merger.  Credit ratings would be maintained, and possibly even strengthened (especially in the case of Telus) by a much larger enterprise with bigger market share and far more assets.

 

 



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