T-Bond trading comment (August 14, 2007)

Well, all eyes are clearly on the stock market and more specifically on the financial sector ! Today, we had more bad news related to mortgages and ABCP from Citigroup, Sentinel, Lehman, Bear Stearns and Goldman... Just to give an idea, since mid july, the banking sector in the S&P500 has lost just over 22%... And this is just in North America, overnight there was also noise from Societe Generale in Europe after BNP Paribas last week. Finally lets not forget that in Canada, we are living historical moments as ABCP conduits are facing huge problems, since no investors want to buy their commercial paper.... This means that they could default and force the unwinding of huge CDO positions.... Can you spell credit crunch?

In any case, this morning we opened slighlty lower than were we had left the market last night and we went to revisit the low 109s has PPI got out stronger for the global reading. Afterwards the stock market opened and started to crash so as we have done in the last few days, we started to go back up in support. There was one nice trading opportunty for trend followers this morning when the stock started to go down otherwise it was pretty calm.... Again volume was slightly off today as a lot of market players are staying on the sidelines or simply enjoying the summer sun.

Tomorrow we have CPI numbers to look at and NAHB index. I think it is safe to say that with all the bad news in the housing sector we shouldn't see any major recovery in the index tomorrow....