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Daily Market Commentary

Late last week the yield curve broke out to the steep side, as the short bonds rallied significantly on the back of Greenspan's comments.  The long bonds were more or less unchanged, but as the Fed admitted they would have to get aggressive with rate cuts, yields in the short end dropped sharply.  While we still feel long bonds are expensive at 4.05% yield, it is hard to see them dropping significantly.  The market in Canada has a distinct shortage of high quality long duration product, and there are plenty of buyers who need the duration.  Life insurers, pension funds and other long duration seekers keep a lid on the yields in the long end.


  This week, there is plenty of data, including CPI numbers, but the real focus will be on company earnings as Alcoa led the party as always last week.  Plenty more earnings releases are sure to shift the balance between equities and bonds as the week rolls on.  The relationship of stocks up/bonds down seems to be holding well recently, at least for low risk bonds.  Credit bonds like corporates and mortgage backs continue to languish.  Their prices continue to seriously underperform the rest of the market.



CAD$, after a terrible performance last week, has stabilized for the time being against the big dollar, but both are weak around the world.  Euros are the place to be this morning, up a full penny against the CAD and US$


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