Greetings beloved readers,
I would say the commentary is back by popular demand but since no one had emailed email@example.com inquiring about the lack of articles and insights, that would be fake news. What isn’t fake news is that a lot of things have happened over the last few weeks. Inevitably, a lot will be missed but as the old market adage says, “the past is not always a predictor of future behavior”. So don’t fret, it’s in the past. For example, just take a look at sports teams with poor pasts and recent successes…the Washington Capitals...or the Vegas Golden Knights…or the Raptors and Leafs...never mind.
There has been some volatility in interest rates that you were probably aware of. The 5 year benchmark Government of Canada bond is opening at around 2.19% this morning. The equivalent 10 year bond is opening at around 2.36%. This is in contrast to last Friday, the 18th, where both the 5 and 10 year bonds were wider by 10bps and 13bps respectively. For some context, 5 and 10 year bond yields are almost exactly the same today as they were a month ago. So it never pays to wait, whether it be locking-in mortgage rates or throwing hand grenades.
Canada Mortgage Bond (CMB) yields faired similarly. The benchmark 5 Year CMB is yielding 2.50% and the benchmark 10 year is yielding 2.73%. These are, again, both 10bps and 11bps tighter than they were last week. Speaking of CMB’s, the 10-year CMB was reopened and was priced last week at +37 bps over the benchmark 10 year bond. The previous and first opening of the 2.65% coupon 10 year CMB was priced at +36bps in February. In trading this morning, spreads on the 10 year CMB have maintained that +37bps spread.
Looking at any new issuances recently, TD Bank issued 5 year deposit notes at +80 over the 5 year this morning. Earlier this week, CIBC issued 7 year deposit notes at +90 bps which draws closely to a $250 million OMERS Realty deal priced the same day, which was finalized at 7 years at +93bps. However, a huge deal was priced on May 10th, and trust me it’s the biggest, best. First National came to a market with a $606 Million 5 year NHA MBS deal at +47bps vs the GoC curve. The deal was well-received by the market and was the first syndicated NHA MBS deal by First National this year. Yuge.
I don’t blame you if you missed the always electrifying CPI and retails numbers that came out last Friday. Long weekends tend to do that to our brains. The month over month CPI, or inflation metric, was 0.3% for April which was spot on expectations by the market. The year over year number was just slightly under expectations, which came in 2.2% versus the 2.3% surveyed. The “core” measures of inflation were all inline, which will do nothing to alter the Bank of Canada’s intentions on rate hikes.
March retail sales also didn’t move any needles. There was a headline gain of 0.6% for March versus the 0.3% expected. The largest improvement was the new dealer cars category which saw a 0.74% increase in the month. Volumes, in terms of dollars actually expended, grew 0.8% or $C47.8 Billion in March although we are still down in volume terms for Q1 of this year.
If you’re still with me, without delving into; NAFTA, China, Iran, North Korea, pipelines, housing affordability, the Royal wedding or the Global Socioeconomic Impact of Cystic Echinococcosis, what the past few weeks have shown us is that the economy is doing well but is not as robust as generally thought since last rate hike. The Bank of Canada didn’t receive any game-changing stats which would impact the frequency or timing of interest rate hikes. The Bank of Canada has a rate decision next week and the market is predicting a 24% chance of rate hike, which in my opinion may as well be 0%, as the markets don’t appreciate surprises. Then again, anything could happen, at any time, so here’s to Iceland winning the World Cup this summer.
Remember, water on the water and beer on the pier.
Have a good weekend,