December 6, 2011

Rates have bounced around quite a bit in the last 24 hours.

Beginning early Monday afternoon, the bond market began to rally sharply as word came out that S&P were going to place 15 (out of 17) eurozone sovereigns on negative watch for possible downgrade, including all six AAA-rated nations (Germany, France, Austria, Netherlands, Finland, and Luxembourg). S&P is apparently concerned about the impact of systemic stress within the eurozone on economic growth, although the downgrades themselves are very likely to amplify such stress, possibly leading to a negative feedback loop. A euro summit is taking place this coming weekend where Germany and France will push forward a plan to enhance governance and oversight rules to better enforce the Maastricht Treaty criteria. As mentioned before, this is the best plan I’ve heard on how to tackle this ongoing problem and likely a precondition for popular German support of broader bailout measures.

This morning the bond market in Canada reversed course and began to sell off somewhat as BoC Governor Mark Carney held the overnight rate at 1.0% yet again – in line with expectations – citing concerns about Europe and global growth, while at the same time suggested he is not willing to lower the rate either, citing the existence of considerable monetary stimulus in Canada, momentum in household spending and strong business investment.

Also, building permits in Canada increased by 11.9% MoM (+1.6% expected) in October.