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Daily Market Commentary

Bonds are little changed this morning, as there is no data out to drive the markets.  The real story in the bond markets has been the downside volatility in the corporate sector.  The yield spread of credit has been moving at unprecedented speeds as traders dump ANYTHING credit in order to pick up risk free Canadas.  We find this strange, as provincial bonds, and fully government guaranteed agencies have been caught in the downdraught as well.  While Canada and Treasury bonds have been rallying,  corporates, provincials and agencies have not been participating.  While this is understandable in the corporate sector given the current equity markets and credit situation, we have a hard time believing that governments like BC and Ontario will be unable to honour their debt.  If we survived Bob Rae's leadership from 1990 to 1995 with defaulting, we can make it through anything!
Provincial bonds are starting to look attractive in this space, and while the market may remain illogical through this credit crisis, we believe there is more value in the provincial and agency sectors than in the Canadas.
  The Loonie continues to hover in the 0.98 range (1.0150 US).  Don't expect further rallies in the CAD$ until the risk appetite has returned to equities.  Despite oil hitting highs yesterday, our currency is now associated with strong equity markets and reflation trades.  The greenback and Euros are still perceived as a safe haven where money will tend to flow as long as market jitters continue.

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