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Daily Market Commentary

 These are interesting times, indeed.  Stories and data seem to be diverging, offering a wide view of potential outcomes in today's markets.  Economic data this week has been positive (if a little thin), including the slight narrowing of the US trade deficit announced this morning. The TED spread has been narrowing recently, equities have been rallying and the overall tone has improved.  Yet we are still hearing stories of waning demand for corporate debt, failure of auctions, the inability of municipalities to issue new bonds.  Bond insurers are still in spotlight - will they be able to weather this storm?



  Short term corporate paper of many varieties (specifically Auction Bonds - which have floating rates determined by auction every 7, 28 or 35 days), which was being sold in the 4% range last week is now being auctioned off at 10+%.  Bank of America analyst has estimated that 80% of yesterday's short term corporate funding auctions failed.  All this spells higher borrowing costs for corporations and local government alike in the US.  These funding mechanisms are used by everyone from industrials to hospitals to municipalities.  Many of them carry ratings that are dependent on the bond insurers, which is the root of the problem.  This de-leveraging by investors is essentially a negative for the economy and the markets alike; the question is, has this been reflected to date, or are the problems getting worse?







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