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Daily Market Commentary

Traders got caught off guard in Japan overnight, as consumer prices climbed 1.2% from a year earlier.  Panic selling prompted the exchange to halt JGB trading during the day.  There would be a lot of Japanese bond traders who were in diapers last time they were trading off upside surprises in inflation numbers.  This, as well as North American traders changing their bets on the Fed's upcoming actions, have bonds trading lower here as well.


Two year Treasuries are coming off of their worst two week decline since 1982.  Keep in mind, these hit a panicky 1.30% intra day in March (putting their real yield @ -1.1%), so the 2.50% we are seeing now incorporates the "unwinding of fear".



Ambac CEO Callen is in the news once again claiming their AAA rating is "Solid" without selling new shares.  The 10% yield on their 2011 maturity bond and the 6 week old shareholders who are 50% underwater would suggest otherwise.



Yesterday's New Home Sales disappointed once again, dropping 8.5% from the previous month.  February's numbers were also revised downwards.  We know (now that earnings outside of American consumer related industries are coming in very well) that this housing situation is old news.  We are all looking at other sectors, BUT the housing situation has broad implications for the Financial Services sector, which we're all somewhat involved in.  We'll keep our eye on things for now.



Consensus still has the Fed cutting 25 bps on Wednesday, the market will most likely enter its self-imposed "quiet period" leading into it next week.


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