Step 1 Complete for U.S. "Rescue"

rescue-plan The $700 billion rescue plan has made it past the senate.  Now it’s up for a vote in the House tomorrow.

Given Monday’s market debacle you’d think the markets would be happy with this thing passing.  But no.  North American stock markets are sharply lower today.

The credit market is also somewhat dysfunctional at the moment.  Rates on short-term lending are still stubbornly high.  Investors continue to prefer the safety of government securities.  As a result, mortgage spreads remain wide (which has kept upwards pressure on mortgage rates).

As for Canada’s treasury market, the 5-year bond yield is now at 3.02%, down 0.09% from yesterday.  Hank Cunningham at InYourBestInterests.ca says “bonds continue to rally for all of the obvious reasons: weak employment condition, falling equity prices and even a dovish statement from the ECB.”  Now there’s increasing rate-cut talk as well, and don’t forget to toss in the “flight-to-safety” catalyst.

In the bankers’ acceptance (BA) market, futures are down to 2.95% from 3.26% last Wednesday.  Bloomberg says this is because traders are anticipating Bank of Canada rate cuts. The BA futures have averaged 0.14% above the central bank’s overnight rate since 2005.

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Side Bar:  Merrill says $50 oil is a possibility.  (Marketwatch) That would be good news at the gas pumps but it probably wouldn’t be too great for Canada’s oil industry (and perhaps, the western real estate markets).  Some, for example, estimate the minimum economic viability level at $70-85 a barrel for many Alberta producers.  On the other hand, BMO says lower prices might actually be a plus for our economy overall.  (Canwest story)

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