The Credit Score

Morning Comments

FIXED INCOME

Softer economic data out of China, together with lingering concerns over Europe are
pushing investors towards risk aversion this morning. Indeed, two Chinese economic
releases for February missed consensus estimates: Retail Sales progressed 12.3%,
compared with a 15% estimate, and Industrial Production climbed 9.9%, versus a
10.6% consensus. Investors are selling off equities on the news (-0.5% on average),
while commodities are stubbornly holding their own. Friday, after the close, rating
agency Fitch cut Italy’s credit rating one notch to BBB+ with a negative outlook, citing
that the inconclusive elections have produced political paralysis that threatens the
country’s ability to maneuver in a European recession. Also, EU leaders are preparing
for a March 14-15 summit to discuss the financial rescue terms for Cyprus. Bond yields
in Canada and the US are nonetheless still unchanged to start the session.

Corporate Credit

New week, same story, for Canadian corporate spreads. Spreads of corporate issuers
in Canada are still trading rather aimlessly, after the massive early-year tightening that
we witnessed in January. Once again, only Canadian banking spreads (senior and
subordinated) are noticeably bucking the trend by slowly and constantly tightening.
Watch for corporate supply to dictate the next trend in corporate spreads.

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