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Daily Market Commentary

 Bonds are starting the week slowly, mostly unchanged from Friday.  Without much data this morning (or upcoming this week), trading is very light.  We will be looking to earnings reports and perhaps politics to drive the market.



After the drastic Fed cuts, the Yield curve have come back to being normally sloped.  The market is calling for more cuts.  In fact another 75 bps by June of this year are currently implied by the Fed Funds futures.  Such a rapid return to normalization has put the market at ease recently.  While the corporate credit spreads seem to have stabilized recently, they still haven't improved appreciably.  There is still some apprehension in the credit world shown by the levels of new issuance in the markets, although is seems to be isolating itself in particular names instead of being widespread.  BNS issued a 3 year FRN (floating rate note) at a level of BA's + 40 bps.  BMO also came to market, issuing a shorter 2 year FRN at BA's + 50 bps.  There is obviously more nervousness in the markets regarding BMO's name over Scotia's given the term and spreads of these issues.



Bond insurers continue to be one of the riskier plays in the market.  The large private equity and hedge fund players such as KKR, Carlyle and TPG have decided to hold off on investing in the battered monolines.  This leaves it to the banks to save the insurers, or face the pain on their balance sheets - pay now or pay later?



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