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Daily Market Commentary

The flight to quality has reached new peaks, with most avoiding ANY kind of credit possible.  Corporate spreads continued to widen while government bonds kept rallying.  In fact, quality is in such high demand that North America has literally run out of shorter term T-Bills.  ALL federal government bills under 2 months went no offer.  Interestingly, Bankers Acceptances actually climbed in yield, as the market shuns even our big 5 banks in favour of bills.  Participants are comfortable accepting a zero return as long as capital isn't eroding.  US 3 month treasury bills had their biggest single day drop in yield since October 13th, 1989 (you don't need to be reminded what was happening then).  In the meantime, we've had to treat offers on T-Bills and money market securities as subject.

 

 

Housing Starts this morning, like anyone will actually have watched this number hit the tape, were down again.  No surprise there, and no reaction from the bond market.  These numbers are hugely lagging the reality in the housing markets.  We are now legitimately worried about the ability of prime mortgage borrowers to refinance their homes.  Perhaps too little a down payment was made on an otherwise "safe bet" mortgage.  With the lenders like Countrywide unable to source liquidity, their only option on such refinances could be "put down 20% now or pay us 12%".  20% of their house value isn't something a lot of Americans are carrying around.

 

 

Treasuries and Canada's are trading much higher on worldwide turmoil.  Currencies are gyrating all over the place.  The game is on for the Yen, and the unwind of the carry trade, CAD$, US$, EUR$, A$ are all getting CREAMED against the Yen this morning.  The CAD$ is the second strongest currency around the world, for some reason.  I highly doubt that economic fundamentals are the reason, but anything could happen in these markets.

 

 

Watch equities for cues on the bond market.  We've been trading off the major equity indices for several days now, and today is not the day to break that trend.

 



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