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Daily Market Commentary

Data is light this morning, so the bid in the bond markets is coming from the perceived risks in global equity markets.  Treasuries had started the day much higher, but have given up most of their gains. This is surprising considering equity futures are trading at their session lows.  It's indicative that at some point, even Treasury yields appear too low for the amount of volatility in the markets.  Having risen substantially from the early summer's high yields well north of 5%, the current 4.30% seems pretty expensive.  When traders stop buying even the most bearish news to the equity markets, it looks technically overbought.  While the conditions are still in place for favourable treasury returns in the long run, short term rallying appears to be done.  The Fed is cutting rates, the financials are warning left right and centre and the housing market is still in no mans land with the end of the tunnel still very far away.


  Don't expect a V shaped recovery in housing, as inventories are still massive, and credit standards are getting tighter and tighter.  It will be a combination of these two factors easing before housing can stage any kind of recovery.  Consumers are already stretched in terms of debt as a percentage of household earnings, so they will need some more loose lending standards before they go buying houses again.  That will also require some low rates.



All the perceived risk currencies are trading lower along with world equities.  That is, except the CAD$.  CAD$ strength around the world this morning is remarkable, as it usually would trade lower on risk aversion, similar to the Aussie dollar.  We are currently higher against all currencies except the real flight to quality Swiss Franc and the Yen.  Yen are the place to be this morning.  Every time a whiff of risk aversion enters the market, the Yen goes bid as traders expect massive positions of risky carry trades to be unwound.  This morning is no different, except for some reason the CAD$ continues to be loved.


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