An overview of the latest GDP numbers, economic growth and bond yields

  • Andrew Masliwec, Analyst, Capital Markets


Sometimes, certain weeks have a flair to them that others don’t. Unfortunately, although interest rates have moved and news happened, this past week was missing that “oomph” that gets the people going. Fear not, for next week brings us:

  • the Raptors and Leafs in the playoffs
  • The Master’s
  • Champion’s League
  • Food City 500
  • The final season of Game of Thrones
  • My beer league hockey finals
  • Housing Starts and New Housing Price Index

I can hardly wait, but in the interim, it’s probably worthwhile to talk about what you might’ve missed in the last two weeks.

Economic news

Last Friday brought what many considered a welcomed relief to the economy, with GDP for January coming in at 0.3%. This beat the consensus of polled economists who predicted a modest increase of 0.1%.  The release was closely watched, as GDP usually is, and markets reacted predictably with yields on the 5 year GoC rising 7bps on the day.  Diving a bit deeper into the result, there were smaller detractions in mining, oil and gas than were expected. However, construction grew 1.9% and manufacturing was up 1.5% which compensated for the declines in our natural resource sectors. That’s the largest increase in construction in 8 months. My favourite sales lady at RBC pointed out that the non-rounded Month-over-Month number was 0.349%, which is basically +0.4%. 

It’s worth noting what happens to market expectations with a strong GDP result like the one last Friday. The below table shows the pre-GDP expectations of an interest rate cut by the Bank of Canada and the current expectations:

BOC Dates
















This past Monday, Governor Poloz from the Bank of Canada gave a speech from Iqaluit based around “The Importance of Trade”.  After all was said and done, the speech read as mixed with a focus on concern surrounding weakening global trade.  Poloz also mentioned the slowing economic growth in Canada could be temporary and transitory, while it is primarily focused around oil and housing. Overall, market participants will be looking toward April’s Monetary Policy Report from the Bank of Canada and the April 24th rate decision.

Finally, this morning also brought job numbers for March. There was decrease in net employment of 7.2k while the surveyed was more optimistic, expecting growth of +6.0k jobs.  Unemployment was virtually unchanged remaining at 5.8%. After 6 months of strong jobs growth totaling 290k, this morning’s release won’t do much to frighten the Bank of Canada or the market.


We talk about where rates are all the time, not because I want to, but because marketing can’t publish articles unless they break the 300-word barrier. Regardless, yields have moved notably in the last two weeks, mostly due to the GDP result mentioned previously.  Last Friday, the 5 year GoC was yielding 1.51% and is currently yielding 1.56%. The 10 year has moved similarly, with the 10 year GoC yielding 1.69% which is 8 Bps higher than last Friday.

On the credit side, CMB’s are also wider today as the 5 year CMB is yielding 1.92% and the 10 year CMB is yielding 2.14%. Currently, the 5 year CMB spread is about 35bps and the 10 year CMB spread is 45bps. This is 3bps tighter for both 5 and 10s compared to last week, showing bullishness in the overall market. Comparing to 6 months ago, 5 year CMB spreads were about 25bps and the 10 year was about 35bps.  Tighter credit spread are easily explained through increased confidence in the markets, as the stock market has been rallying for the last week with the TSX nearing all-time highs once again.

Finally, fashion in the financial services industry took a major hit this past week. Patagonia vests, a long staple of mid-town Manhattan and a recent transplant to the Toronto financial district scene, will be much harder to acquire through corporate sales programs.  Patagonia announced that they would no longer work with companies that weren’t “mission-driven companies that prioritize the planet”.  Unfortunately, it looks like my long-term pitch to have marketing acquire “First National” embroidered Patagonia vests just got a bit harder. Maybe I’ll pivot my focus to First National branded Yeti’s instead.

Have a good weekend,

Andrew Masliwec