Daily Market Commentary
December 13, 2007
Yesterday was a very volatile day in bond land with the market giving up all the gains from the day before and there was an extreme one day flattening of 15 basis points as the short end sold off vigorously.
The coordinated plans to inject liquidity on the part of the Fed, the ECB, Bank of England, Bank of Canada and the Bank of Switzerland, while a welcome move, was met with a healthy dose of skepticism. The Ted spread did not improve at all and remains in the dangerous 230 range.
What inflation? US PPI rose a stunning 3.2% in Novemeber, producing a year over year rate of 7.2%. Once you remove those pesky food and energy items, the advance was a more benign .4%. Also surprising on the upside were retail sales; growing by 1.2%, they doubled consensus forecasts. Apparently, consumer confidence and spending are not tightly correlated.
Bond prices are giving more ground this morning after this news with the bellwether ten year Treasury Note down a full half point.
The CMB issue mentioned yesterday will be priced this morning. At $ 9.5 billion with a full order book, this issue demonstrates that some sanity is returning to investors. Pricing is expected at 34 beeps over Canadas, putting the yield in the 4.35% area.This issue is fully fungible with the existing CMB of the same maturity producing total size of a whopping $ 19 billion, which puts it in the bellwether camp also. These bonds are cheap and will likely narrow in versus Canadas by 15 beeps or so in the coming weeks.
There has been some serious buying of investment grade corporates in the past few days, another sign of growing sobriety on the part of investors.
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