Andrew Masliwec reviews this week’s rates, Bank of Canada updates and more

  • Andrew Masliwec, Analyst, Capital Markets


It's Andrew filling in for the 'treasury guy' this week. Reached via satellite phone, the treasury guy said AC is at an all-time low at home while the Humidex is slated to be at monthly highs. I'm not sure if that is a trade idea or he's getting work done on his house. Regardless, it seems like I still have much to learn.

Rate Recap

This week’s trading session was volatile to say the least. I’ll go into the reasoning for the seesawing in rates further down in this commentary, but it’s important to highlight how quickly interest rates can move. Last Friday, the 5- year Government of Canada closed at around 2.19%. This past Monday, the bond closed 4 bps lower and proceeded to trade at a low of 2.02% on Tuesday. As of writing, Friday, the bond has sold off most of its gains to a yield 2.14%. The 10 year faired similarly, closing at 2.41% last Friday, reaching a low of 2.16% midweek and is now trading at around 2.24%.  

Clearly, if you are in the business of buying and selling bonds it could have been a very good or very bad week. However, the majority of people reading this are hopefully more focused on financing real estate projects and developments. So with that being the case, it’s equally important to highlight the fact that you can try and time the market to get a lower mortgage rate, but as this past week showed interest rates can move very quickly in or out of favour. Most of the time, waiting for a 2 basis point move in yields may cause you to end up being 10 basis points higher. Luckily, for all you readers out there, part of our job at First National is to ensure you get the best possible borrowing rates. With our early ‘rate lock’ program, you can forgo all this possible volatility by setting a rate today and not worrying about what happens next time Trump tweets, Trudeau gets in the oil business or the next Bank of Canada meeting.  

Case in point:
Since March, yields have steadily been rising for all major bonds. In the last week and a half, almost all major benchmark yields of note have sold off and given back about 30 bps, bringing us very close to March levels. I don’t know about you, but I would have slept a lot better at night if I set my mortgage rate in March and didn’t have to worry about geopolitical pandering, trade wars or Italian parliamentary proceedings.


The rally in bonds early this week was in direct reaction to renewed fears of another “Eurozone” crisis. The Italian Prime Minister was unable to muster support from the major political parties to form a stop-gap government. The Italian markets crumbled when fears abounded of a referendum on leaving the Euro, as the people in charge were seen as very “Eurosceptic”. For context, the last time a similar situation happened in Greece in 2011, US treasuries rallied sending 10 year yields down approximately 200 basis points. Stable economies, such as Canada or the USA, will see investor’s flows into their currencies and bonds when there’s instability in Europe, hence we saw a rally in our bonds as investors felt uneasy about the birthplace of Pizza. 

Bank of Canada

Wednesday also brought the Bank of Canada rate decision, where if you saw last week’s commentary, you wouldn’t be surprised to see that the Bank of Canada decided to keep overnight rates unchanged. In their statement, the Bank of Canada dropped language on being ‘cautious’ on rates and also removed language on need for ‘monetary policy accommodation’. The market seems less concerned with the BoC’s statements, as they are always open to interpretation, and will look toward new data due out before the next July meeting. However, many did see this BoC meeting as reinforcing a July hike. Well, that was until Thursday’s GDP release and fresh new trade wars.

On Thursday, we saw March GDP numbers which were a mixed bag. Quarterly GDP Annualized missed estimates of 1.8% and came in at 1.3%. The Month over Month number for March came in higher than estimated at 0.3% beating out the surveyed number of 0.2%. There’s a host of reasons for how quarterly numbers miss, MoM numbers beat and Year over Year expectations are spot on, but I’m really trying to keep this short. I probably lost half of you already. Much like the statement a day before, the GDP numbers left a lot open for interpretation by the market. In my opinion, the biggest market mover happened later that day. Pizza tariffs. 

Trump announced Thursday that they would be imposing steel (25%) and aluminum (10%) tariffs on Canada, Mexico and the EU. This is a big deal and something that the Bank of Canada wouldn’t have known when they made their speeches and statements.  Canada is a highly involved in the US trade of Steel/Aluminum and so, shortly after, Canada implemented their own tariffs on about $16.6 Billion of US products exported to Canada. For NAFTA negotiations, which is a free trade agreement, this is not a good development. International pizza relations, which were already strained by the Italy situation, were further hindered through the Canadian tariffs as a 10% tariff was imposed on all pizza entering our country. Take that Papa John’s. Other interesting Canadian tariffs included playing cards, non-frozen orange juice and chocolate. Interesting to me at least. 

So after all that, here we are. The market still thinks there’s a 75% of a hike on July 11th. But as I mentioned earlier, why worry about that, when you can fix an interest rate today with First National’s early rate lock program?

I’ll leave it there for this week…the Treasury Guy called and needs me to delete some ‘burner’ Twitter accounts…Friday’s, am I right?

Have a good weekend,

Andrew Masliwec