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Daily Market Commentary

The high yield parade in financials continues.  Goldman Sachs issued 10 year notes at 270 bps over treasuries (6.15%) and Citigroup sold $1 billion worth of 10 year stirling notes at 300 bps over UK Gilts (7.625%).  Just as credit appeared to be improving slightly, several large issues hit the street at deep discounts to existing paper.

 

  Most of these issues appear to be restricted to the financial sector.  Interestingly, all these new notes and preferreds have been met with voracious demand, easily selling out.  While it seems each subsequent issue comes at a slightly higher yield, despite government bond yields continually dropping, there has been no lack of demand.

 

 

US GDP was out this morning, printing at 0.6% annualized for the 4th quarter.  This is in line with expectations, and shows that the slowdown continued during the end of 2007.  Surprisingly, personal consumption also rose for the quarter, although the price index eased.  The Fed will be happy to see the GDP Price index and the Core PCE ease slightly as growth slows.  While the prospect of stagflation has been in the press a lot lately, we still find it somewhat unlikely.  At the end of a cycle, the central banks almost always need to ease in the face of high inflation numbers.

 

 

If you haven't checked out clients' RSP accounts, there are lots of strip bonds available.  Strips offer fully compounded yields and are safe ways to put money away in registered accounts.  In addition, provincials have risen to attractive yield levels in relation to Canada government issues.  Check out BondOne for offers and pre-made strip ladders



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