Daily Market Commentary
November 30, 2007
In what is rapidly becoming the norm, bond prices went through another day of wild gyrations, with the bellwether 10 year treasury notes advancing by a full point, driving the yield to another two year low of 3.94%.November is turning out to be the best performing month in 12 years for US Government bonds with a total return of 3.2%. Two year notes, responding to further evidence of a deepening recession, fell below 3%!
While Q3 GDP was hiked to + 4.9% in the US, the Administration wrote down its 2008 forecast to +2.7%. Bernanke, in a speech yesterday, pretty much sealed the deal on a rate cut in December. Twenty five beeps is in the bag but yours truly is in the fifty beep camp.
This mornings news did little to dispel this outlook with both personal income and spending being weaker than forecast. Look no further than the spike in oil prices for the culprit.
In a sign of things to come, and you can bookmark this, Treasury Secretary Paulsen and other senior Administration officials, met to discuss ways of freezing the subprime mortgages at one fixed rate, rather than have these people who had no business buying homes in the first place, be subject to the higher rates that would take effect when the " teaser" rates ran out.They are also attempting to put a halt to the growth market in foreclosures.
Closer to home, the Canadian currency has lost some altitude and was threatening to hit parity yesterday. Q3 current account surplus fell dramatically to $ 1 billion primarily owing to very weak exports. On another note, December 1 is a massive coupon payment date in Canada and evidence abounded of that money being redeployed in the cash market yesterday.Unlike the US, where credit spreads are on a rollercoaster, there is some sense of stability in Canada but it is fragile for sure.
We continue to monitor the TED spread carefully. It is an economic stress indicator and it is approaching the peak levels of 245 that we saw in August.Thus it is imperative that the Central Banks take concerted action to avoid further carnage in credit markets.
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