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Daily Market Commentary

Will he or won't he? Santa or Grinch?The odds are heavily in favour of a decrease of 25 basis points in the Fed Funds rate at 2:15 this afternoon by the Fed with the added possibility of a cut of 50 beeps in the Discount Rate. The Fed continues to fret about the underutilization of the Discount Window.


 There is precious else to discuss this morning. Bond prices continued to correct yesterday, with the slightly stronger than expected pending Home Sales being the apparent catalyst. Ten year Treasurys hit 4.15% after being in the 3.84% area last week.


 A report this morning indicates that US Q4 growth is going to be in the 1% area owing to weak consumer spending and the housing market debacle; the forecast is similar for Q1 2008 so, as these numbers are close to recession size, the Fed will extend the easing cycle well into 2008.


 In Canada, the bond market faces an interesting test next week. Canada Housing Trust will issue approximately $ 9 billion of CMB bonds. It will be a reopening of the 4.55% of 12/15/12 which were issued at 21 beeps over Canadas last month. The spread on these blew out to 41 over before rallying to the 34 beep area. These bonds are unconditionally guaranteed by the Government of Canada , making them a bona fide AAA plus they have the security of the high quality mortgages too.


They are an incredible bargain.  Also of note in the Canadian bond market is that a couple of potential issuers( one a chartered bank beginning with a C and ending in IBC) were unable to attract enough interest at generous spreads and had to pull their deals. 


There are lots of news releases later in the week to point the way including retail sales in the US.


Today, bond prices are flirting with being unchanged and the yield curve, while steep, has stabilized.


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