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Daily Market Commentary

All's well with the world again, so bonds have entered their second day of declines.  The 2 year treasury, after briefly dropping below 4% amid a panic of credit has risen all the way to 4.23% in two days.  The chatter on the street has changed from whether or not the Fed will step in with an emergency cut to the Fed Funds rate, to whether or not they will cut at all at the next meeting.  The carry trade is back on, the risk currencies are soaring again (including the CAD$, KIWI$ and AUS$).  The big banks including Bank of America, National and the Big 5 are all stepping in and playing hero to the liquidity troubles that the market has seen.  So amid all this good news, the volatility seems like a thing of the past.

 

Let's keep in mind however, risk free product continues to be VERY expensive if it can be bought at all (as in the case of short bills).  Consumer confidence (measured on Tuesday amid market turmoil) plummeted to 2002 levels, mortgage applications are falling off a cliff, and most disconcertingly - continuing jobless claims as reported this morning are slowly creeping their way upwards.  The chart (see Daily FI Snapshot) appears to be forming a bottom, albeit in an orderly fashion.

 

  The concerns in the market continue to be in credit, but with the TD bank printing $1.1 billion this quarter, we still think Bankers acceptances are a very safe bet, and would encourage using them for your money market needs rather than treasury bills.  The ABCP market has caused ripples into the bond market yesterday, with a "large sellers of corporate paper" (guess who? The names rhyme with Rational Tank and Fundee) hitting the market with hundreds of millions of bank paper, presumably to fund their bailout of Coventry created ABCP.

 



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