All weeks are created equal. They all have seven days, 168 hours and 10,080 minutes. What isn’t equal, is the amount of groundbreaking mortgage and interest rate related news that comes out in said week. Unfortunately for someone who writes commentary on exactly those topics, this very well could be one of those weeks. However, fortunately for our loyal readers, our sophisticated research and writing methods will still allow me to disseminate all the pertinent information you didn’t know you needed to get you through this weekend. In the words of Superman, “No need to thank me, I’m only doing my job”.
All benchmark yields are lower today as bonds have been bid the last few days. The benchmark 5 year bond is currently yielding 2.08% and the 10 year is yielding 2.21%. Compare this to last Friday, where the 5 year closed at 2.16% and the 10 year closed at 2.32%.
Similarly, the Canada Mortgage Bonds have moved in a similar fashion. The current 5 and 10 year CMB’s are lower by 10 bps and 12 bps respectively since last Friday. The 5 year CMB is yielding 2.37% and the 10 year CMB is yielding approximately 2.57%. It is worth highlighting, we are now sitting approximately 30 bps lower in all the bonds mentioned since a month ago. Clearly, it’s as good a time as ever to utilize the early rate lock option First National offers to take advantage of these low rates and no longer fret about any volatility to come.
Canada’s data this week was what economists and pundits like to call ‘soft data’, where the outcomes of the data can be interpreted in various ways. Statistics Canada released their equivalent of tissue paper this morning with manufacturing sales and existing home sales. Manufacturing data came in weaker than expected. The manufacturing survey run by Statscan showed that April manufacturing sales slowed to -1.3% versus what the market was expecting of +0.6%. Piling on the slow sales was manufacturing volumes, which were also down by 1.9%. Existing home sales only edged lower by 0.1% in May versus the expected -1.7%. Currently, the year over year decline in national home sales is sitting at 16.2%, which was helped by the May release from a 19.7% decline. Interestingly, Toronto sales were up 1.6% month over month, this first time that has happened since December. As an aside, if you recall, December was also the last time BitCoin was interesting. The cryptocurrency is down to ~6500 from the 18,000 (USD) it was in December. Ouch.
Currently, the market is pricing in about a 72% chance of a BOC rate hike on July 11th. It would probably take a lot of poor economic data going forward to push the hike into September but the manufacturing numbers today was a start. Looking forward, before July 11th we have: Retail Sales, CPI (Inflation numbers), a speech by Poloz, wages, employment and the Business Outlook Survey. You will read about it all here first.
On Wednesday the Federal Reserve in the USA decided to increase their fed funds rate to a range of 1.75-2%. The last time the rate topped 2% was in the late summer of 2008, which was in the midst of the global economy shrinking due to the pending financial crisis. The US economy is firing on all cylinders. One statistic that stands out, is that for the first time, job openings in the USA actually outnumbers job seekers. Hence, many are expecting the fed to continue their course of monetary policy and increase their fed funds rates two more times this year. I would expect this can also push the BoC further towards hiking as well.
In other news, by now the tit-for-tat, war of the words with Trudeau and Trump has passed and you probably have read all about it. So too has the momentous meeting between Kim-Jung Un and Trump in Singapore. The G7 meetings that also happened over the weekend also provided some great photos which I highly recommend googling. In my opinion, the most important information actually came out this morning, as the USA officially enacted tariffs of 25% on about $50 Billion of Chinese imports. To no one’s surprise, China immediately vowed to retaliate with measures of similar scale against the USA. The headlines read this as being the beginning of a trade war and all major equity indices are lower as of writing.
Finally, the World Cup started yesterday and as an added bonus, Canada, the USA and Mexico were announced as the 2026 co-hosts. No word on if that’s going to help in the NAFTA negotiations but one thing is for sure, side of the road flag sales will be at a 4-year high this summer.
Have a great weekend,