An update on bond yields, GDP numbers and this week’s BoC announcement

  • Andrew Masliwec, Analyst, Capital Markets


You may have wondered where the commentary was the last couple weeks. Well here at FN we don’t have superstitions, but my palm reader/chakra crystal sales lady said it was bad juju to keep writing about Toronto sports teams. Well, would you look at that? That crazy cat lady knows what she’s talking about.  The Raptors are well on their way to doing something Vancouver and Montreal have never done: win an NBA Championship.

Unfortunately, Marketing insisted that I end the commentary drought today. Something about their website statistics. So if for some reason Fred VanVleet Sr. turns back into Fred VanVleet Jr. or if Kawhi Leonard decides to move to the Clippers mid-series, you know who to blame.


It’s always healthy to refresh yourself on where bond yields have gone recently. Here’s a hint: they’ve gone down. Really far down compared to a year ago. The current 5-year GoC, used as a proxy for mortgages rates, is now yielding 1.40%. That’s shaved 10bps off from last Friday and about 72bps tighter than exactly a year ago.  The 10 year GoC is yielding 1.50%, almost 75bps down from this time last year.

Canada Mortgage Bonds (CMBs) have fared similarly. The 5 year and 10 year CMBs are yielding 1.75% and 1.94% respectively. The 5 year is 8 bps tighter than last week while the 10 year is 10 bps tighter. Funny enough, maybe to just me, as of writing they are both 69.7 bps tighter than this day, 2018.

If you were paying attention to past commentaries, you will notice that bond yields have given up almost all of 2018’s rate hikes (there were 3 at 25bps each). It’s worth pointing it out since it goes to show how the Bank of Canada tries to influence borrowing rates, but ultimately market sentiment and participants determine the longer part of interest rate curve. Clearly, the market is not overly concerned with inflation or runaway growth.

Bank of Canada and GDP

So what does the BoC think of their 2018 handy work and current state of events? Well there was Bank of Canada meeting this past Wednesday where they kept the overnight rate unchanged at 1.75%.   No shocker there, since it was universally expected to keep the status quo. The BoC keeps reiterating the need to be data-dependent with a focus on Canada-US Trade, Canada-China tensions and generally, all the global trade tensions. The BoC is viewing the economy largely as how they expected, which did not move the needle for any further hikes in 2019 and bond yields went lower on the day.

GDP for March was released Friday morning, which missed virtually all economists’ forecasts and predictions. Economists were expecting growth of +0.7% for March while GDP came in at +0.4% month-over-month. It’s not all bad since this is more in-line with the Bank of Canada’s all forecasts and models, so maybe they know what they’re doing after all.  Diving a bit into the result, net exports were a big drag as expected (-3.9%) but much better than expected consumption and business investment helped cover that result. Overall, 2nd quarter GDP is still tracking at 2.2% and this headline miss didn’t do much to change that.

Anything Else You Might have Missed

Well the market is continually being thrown by a loop by trade tariffs. The USA announced its intent to increase tariffs on Mexico by 25% (worst case), if the illegal immigration isn’t halted into the USA. This has implications for the USMCA deal which still needs to have its “ratification process” by Canada. We may end up having a USCA deal or the NAFTA/USMCA may be at risk all together.  Only time can tell, but on the back of the news:

  • German 10 year bund yields are at all-time lows, reaching -0.206% ( yikes)
  • The VIX, or volatility index is higher and;
  • The Mexican peso plunged more than 3%

Finally, speaking of the “ratification process”, New York City is currently in the midst of their own. According to NYC’s 311 hotline, rat sightings have increased 38% to 17,535 last year from 12,617 in 2014.  City health inspectors also noted the influx of rats, with active sightings of rats nearly doubling in the last 5 years.

So who’s to blame for all these rats? Millennials.


Scientists and pest control experts say that through the gentrification process of many of the City’s neighbourhoods, the construction boom is digging up rat burrows and forcing them out in the open. So it’s not that there’s more rats per se, there’s just like, you know, more rats hanging out and stuff.

But hey, man.  It’s not my fault rats enjoy my rotten avocados, gluten-free cheese and overpriced kombucha drinks.

Raps in Six,