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Daily Market Commentary

As mentioned above earnings will be driving the market today.  The bond market is taking Citi's and HSBC's miss in stride, most likely taking this to be "kitchen sink" reporting behaviour.  Otherwise, you'd expect treasuries to be better bid, especially in the short end where they are flat on the day.


  Data starts at 10am today, with ISM manufacturing numbers.  These are closely watched by the bond and FX markets, so watch the tape around that time.  Aside from Friday, when the jobs numbers come down, the week is actually quite light in term of data.



One spread we have been watching is the Canada-US ten year spread.  With our economy outperforming, and inflation a greater concern here than in the US, we have been expecting our ten year yield to trade higher than the Treasury for some time.  In Aug and September, this spread narrowed significantly, and almost traded flat, from a peak of about 70bps.  Recently, it has jumped back out to 26 bps despite the data continuing to favour higher yields in Canada vs. those in the US.  We'd expect this to be a temporary setback in the trade.  With the Fed firmly in easing mode, and no signs of movement from the BoC, our entire yield curve should be trading above the US curve.  The only thing going against this is the relative scarcity of Canada bonds - with Canada aggressively reducing debt, it serves to keep our yields low.  Interesting to note that Ontario spreads continue to widen against Canadas.  There is no shortage of supply of Ontario bonds, so perhaps it would be better to use a blended rate of the Canada plus the provincial bonds as a gauge of overall Canada yields to compare against US yields.



Loonies continue to power ahead, stronger against all currencies except the AUD$ this morning.  Now that the hesitation of trading through par seems to have passed, the freight train keeps on rolling.


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