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Daily Market Commentary

Bond markets were higher yesterday, as the equities bled away over the course of the day.  The 10 am print of existing home sales was crummy.  Sure it beat expectations slightly, but expectations were horrible, as they should be for next month's release as well.  These numbers reflected July's sales, before any real credit crunch had even started in the US.  When August's numbers are reported, expect them to be ugly.  Mortgage lenders are unable to package up their less than quality underwritings and sell them to third parties.  This leaves them with two options:  Take the risk themselves or not write the loan.  Neither one of those options is particularly bullish for the lender or the housing market.  This credit crunch and therefore the housing downturn is not over.


The US 2 year note is back to 4.19% (remember it briefly touched 3.99% during the turmoil last week) and still trading with a lot of volatility.  It will be interesting to see what happens next week when full liquidity comes back to the market.  Flows are still light and smaller orders are having amplified effect on prices in the markets.  That said, the new provincial deals that have come to market in the past week (Ontario, Saskatchewan, Quebec, Alberta) were nothing less than blowouts - Ontario placed $600 million through the dealer syndicate in about 90 seconds.  The appetite for government debt is still as strong as it's ever been.



CAD$ are moderately weaker, trading in line with risky assets around the world.  Yen continues to be strong, as the incentive to hold the carry trade lessens in the eyes of traders.  Greenbacks are lower also, usually the beneficiary of flight to quality, this time it is the Swiss Franc benefiting the most.


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