Update

We advised clients not to take trades based on disappointment into the EU decision because we expected the market crowd to be cheered. That was the result.  We did not predict a real solution, only the market reaction, our job. Key is that one can be right at the wrong time and converted to crow bait in the process.

Sure enough, there’s been a bit of sobering up over there. We’re not sure how things will turn out in Europe but remain keen to sell the US or Canada to the Bund. Germany is a stand out in Europe of course, relatively healthy, but that credit won’t be up to US or Canadian speed, Q1. It doesn’t feel quite right just yet, but the opportunity will come, and, can be worked any number of ways.

Next, we have been constructive on the US relative to expectations. In that spirit, we predicted that today’s Chicago Purchasing Managers Index would broach consensus.  It did not, coming just inside.  Oh well, we were getting to be spoiled.

The general landscape ahead can be picked up in the term structure.  We advised Oct/11 that clients own that curve or sell US debt (we almost always prefer spreads). The 10 yr then 2.14%, 5 - 10, +101, 2 - 30, +276.  Modest progress, last 2.23%, +118, +300.  We don’t have a complete explanation for the recent firming of prices following the EU decision; it is not all due to disappointment with our friends there.

Robert Craven