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Daily Market Commentary

 Bond markets are essentially flat around the world.  There isn't much data out today to drive the markets anywhere.  Friday's strong rally is holding, and the reason of the day is sub-prime woes.  It's interesting to note that at the beginning of this sub-prime mess, treasuries fell as owners of these loans sold treasuries to hedge themselves against overall market declines.  Now government bonds are being considered "safe havens" from risky loans and rally when there is volatility in the credit markets.  Either the headline writers are struggling for reasons to explains market movements, or some players are stuck on some seriously offside Texas hedges.  For those short Treasuries and long sub-prime debt over the last three weeks, the pain will be even worse.


  Because of the lack of news, a 10yr treasury chart is attached to the Daily FI snapshot.  You'll notice May and June's rising yields led us out to bounce off +2 standard deviations, and we are now reverting to the mean trend line around 4.85%.  On a purely technical basis, this would indicate a fairly neutral level to the treasuries.  Expect yields to remain firm as long as there is talk of hedge fund collapse and non-performing CDO's.  Just like any jittery market, government bonds will always be considered a place to run and hide.



In currency-land, the US$ continues to be weak, and our dollar seems to have caught a little of that action against the world ex-US.  We are now sitting at 1.445 EUR/CAD, after having peaked at 1.414 last month.  Compare this to the USD/CAD, where we are only 30 pps off of our highs.  Interestingly we haven't heard "petro-loonie" lately, despite Oil north of $75.  Risks remain for a stronger CAD$ as our fundamentals are still strong and rates are poised to rise here vs. the US, but be careful of a snapback in the US$.  The market has become very bearish, which usually is a contrarian indicator of short term direction.


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