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Daily Market Commentary

Loonies briefly dipped below par this morning even though Canadian CPI came in slightly lighter than expectations.  An annualized 1.4% on the headline and 1.3% on the core gives Canada license to do pretty much whatever it wants with overnight rates.  Hikes in energy and clothing were offset by drops booze, smokes and food - if you can believe that.

 

So why the strength in the loonie with the prospect of rate cuts on the way?  Really, most of this strength came yesterday on the back of weak greenbacks and strong commodities.

 

 

There's a lot of talk that Treasuries are now the subject of a bubble.  None other than the bond king Bill Gross has called Treasury bonds the most over valued asset class on the planet.  The target of panic money, recessionary flows, international sovereign wealth among others, the 2 years reached as low as 1.30% before bouncing back to 2.00%.  At that level, they have a negative real rate of return.  Treasury yields have been very low for quite some time, prompting many to wonder if the treasury market has it wrong and there isn't nearly enough yield (even risk free yield) to support these lofty levels.  Not that I question Mr. Gross (in fact I agree that short treasuries are too expensive here), but just to play devils advocate you could argue that people were saying there wasn't enough yield in treasuries even before credit crisis last summer.  While Gross was very bullish back then and has recently turned bearish, there always seems to be naysayers in the treasury camp.  Certainly the Fed discovering other methods of solving this crisis without just cutting Fed Funds has put somewhat of a yield floor under these bonds.

 

 

Initial and continuing jobless claims came in line with expectations, even though expectations are pretty high, there hasn't been much reaction in the first place.  The trend continues to be negative in the employment area, one of the main and only reason inflation - while constantly nagging us, isn't a full out worry yet.

 

 



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