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Daily Market Commentary

The bond market closed unchanged on Friday with THE BOND, the US ten year note, trading at 3.94%, up 10 basis points from this cycle's low of 3.84% on Monday.Talks continue in the US in an attempt to contain the sub-prime mess. The focus is on attempts to freeze mortgage rates in order to stave off foreclosures, which doubled in October from a year earlier.

 

 In Canada, pundits are evenly divided on the Bank of Canada's interest rate decision tomorrow. Friday's release of Q3 GDP at 2.9% was stronger than expected and that could be enough, along with a still strong employment sector, to cause the Bank of Canada to pause here. Also, the Canadian dollar has come off the boil and may continue to give back some gains on the heels of the slide in the price of oil, the deteriorating trade picture and some signs of support for the US Greenback.

 

 The Fed is certain to cut rates on December 11, making tomorrow's decision especially tricky, as it comes just three days ahead of the latest employment numbers.

 

 Our view is that the long end of the market is ahead of itself and it may back off from here while short rates will likely fall further, producing a steeper yield curve in the process.

 

 The credit crunch is nowhere near being over as the TED spread is well over 200. Interbank lending is sparse with Central Banks continuing to extend short term loans to keep the system functioning.

 



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