Source: www.firstnational.ca

Five year bond yields have been relatively stable over the last week and generally positive news out of North America clashes with sovereign debt concerns in the eurozone.

The positive North American data includes better than expected Retail Sales, Housing Starts, Building Permits, Initial Jobless Claims (all for the US), and higher than expected inflation and Manufacturing Sales for Canada. The good showing in the US has been soured somewhat as the congressional "Supercommittee" that was supposed to find ways to cut the deficit over the next ten years announced this week that they have failed, but nobody should be surprised about that.

This is in contrast to the situation in Europe where the outlook has been dominated not by real economic data, but by market sentiment which has increasingly shunned the bonds of any government other than Germany. The potential for a larger crisis in Europe has kept a lid on rates everywhere (and caused equity markets to sell off quite a bit), while credit spreads continue to remain wider than they have in the recent past, meaning that the gap between fixed mortgage rates and government bonds remains larger than normal.

Last changed: Nov 22 2011 at 3:03 PM