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Daily Market Commentary

Well, where do we start?  As mentioned in yesterday's comment, Bernanke & Co. may have been right to keep inflation risks in check at the last FOMC meeting.  Their beliefs were verified further this morning as US consumer prices rose more than forecast in November.  Driven by a jump in energy costs, headline CPI increased to 0.8%(the most since September 2005) while the core climbed to 0.3%.  Coupled with unexpected strong PPI data released yesterday, these figures are reigniting concerns that upward inflation pressure may outweigh the credit and ABCP crisis (which would temper the previously anticipated need to cut interest rates).  Treasuries are extending losses for a third consecutive day with the long end down over a point already.  The benchmark 10 year bond yield has risen to 4.26% this morning (from 3.98% earlier this week).


Big news in credit land overnight too, as CitiGroup has decided to consolidate 7 of it's SIVs back on to their balance sheet (amounting to over $62B) to help further erosion of investor confidence.  This follows moves by HSBC and Societe Generale earlier this month to avert a fire sale of assets.


The CMB issue mentioned yesterday was priced at 34 over Canadas.  Our belief that they were too cheap is being proven this morning, as they've tightened in 2 bps already!  The CDN$ is down to a 3 month low this morning (on the back of renewed inflation concerns from the US that would bolster demand for greenbacks) to 1.0240








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