Financial Update for May 19, 2009

 TSX-86.35
 DOW -62.68
 Dollar -.73c to 84.81USD
 Oil -$2.28 to $56.34US per barrel
 Gold +$2.90 to $931.30USD per ounce
 Canadian 5 yr bond yields +.01bps to 2.12
 http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us

The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise

'Banking crisis over' says CIBC economist

Jobs and housing still must recover

May 16, 2009 JULIAN BELTRAME THE CANADIAN PRESS OTTAWA

The financial crisis that plunged the world into the worst recession in decades is showing signs of having righted itself.

A proclamation of the welcome development came at the same time that data showed the Canadian economy took another hard knock in March, with manufacturing sales falling 2.7 per cent, reversing a February pickup.

The cheerier harbinger is a steady reduction in global credit spreads -- the gaps between interest rates on low-risk government bonds and higher-yielding corporate and other debt -- which suggest that the financial meltdown is on course to being resolved.

"The banking crisis is over,'' declared the headline in a note yesterday from CIBC World Markets chief economist Avery Shenfeld.

"Nobody now expects there's another Lehman out there,'' Shenfeld wrote, referring to the mid-September collapse of U.S. investment bank Lehman Brothers, which jolted financial markets around the world.

"Nor will banks be pushed into a fire sale of assets that would depress valuations of like assets on other banks' balance sheets.''

The three-month London Interbank Offered Rate, a benchmark for lending between banks, was down 10 basis points on the week to 0.84 per cent, reducing bank funding costs.

Some base rates were the lowest since the U.S. subprime mortgage crisis erupted in the summer of 2007.

Pointing to narrowing credit spreads and improved interbank lending, Shenfeld said a turning point in the U.S. crisis was reached with the Obama administration's rescue measures.

Bank of Montreal economist Sal Guatieri said he also was encouraged by narrowing credit spreads.

"It means borrowing costs will be coming down for a wide range of borrowers, because a lot of variable-rate mortgages and a lot of personal and business loans are tied to the LIBOR rates,'' he said.

Guatieri cautioned that weakness remains in the economy and he is not ready to declare an all-clear until he sees improvement in job creation and housing, particularly in the United States.

Yesterday's data on Canadian manufacturing showed that the recovery will not be a "neat, straight-line'' move, noted economist Derek Holt of Scotia Capital.

The surprising 2.7 per cent tumble in factory sales in March left them down 23 per cent from their peak last July, despite a bounce in auto shipments following assembly-plant shutdowns in January and February.

The retreat was widespread, and with more auto sector retrenchment on stream, the manufacturing picture only looks bleaker down the road.

"Manufacturers are reining in production, but not as quickly as sales are plummeting,'' said Grant Bishop at TD Economics.

"Downward pressure on Canadian manufacturers will continue throughout the next two quarters.''