Did the new USMCA effect rates? Find out here.

  • Jason Ellis, Senior Vice President and Managing Director, Capital Markets

Good Morning,

Once again the she-devils of marketing have asked me to post.  I protested...after all, it is a long weekend and my readership which usually numbers in the high single digits would certainly be depleted.

I said to them:

Treasury Guy is but a walking shadow, a poor player
That struts and frets his hour upon the stage,
And then is heard no more. 
His commentary but a tale
Told by an idiot, full of sound and fury,
Signifying nothing.

They replied:

This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.

To myself, I asked:

To write, or not to write: that is the question:
Whether ‘tis nobler in the mind to suffer
The slings and arrows of marketing,
Or to take arms against a sea of troubles,
And by opposing end them.  To die: to sleep.

Finally, I decided:

Cowards die many times before their deaths; the valiant never taste of death but once.

So…here we go:

It’s been rough week for bonds. Since we closed the books last Friday, 2 year yields are up 10 basis points to 2.31%, 5 year yields are up 15 basis points to 2.48%, and 10 year yields are up 16 basis points to 2.58%. 

Of course the question isn’t where rates are, but rather WHY are rates here?  The most obvious answer was Canada’s agreement to join the US-Mexico trade agreement (now the “USMCA”) last weekend.  Canada made some key concessions on dairy but the US agreed to protect Canada from potential tariffs on autos.  The reduction of uncertainty and de-escalation of a possible trade war was bullish for Canadian economic growth expectations and rates move higher.  The initial down trade (prices) was highlighted by momentum/negative gamma type selling (or put another way, more sellers than buyers).  Easy peasy. 

The selling is presently being punctuated by a stronger than expected jobs report this morning.  Canadian employment popped by 63,300 jobs in September, more than reversing the drop reported last month.  The unemployment rate dropped a tick to 5.9%.  We also can’t underestimate the impact of the new NHL season kicking off with a potentially historic run in the cards for the Leafs.  With the removal of trade overhang (and two goals by Auston Matthews in the season opener) the market has now priced in two 25 basis point hikes by the BoC by January.

Commercial Break

We’ll pause here to highlight First National’s excellent early rate lock program for all your commercial mortgage borrowing needs.  If you’ve already hedged your fixed rate borrowing, congratulations.  If you haven’t, it’s not too late.  Help me help you.  Call your favourite First National underwriter, lock-in, and sleep better!  Two sure things in life are the benefits of sunscreen and hedging your fixed rate mortgages.


Its Thanksgiving this weekend and fixed income markets will be closing early.  I need to wrap this up and get back to my actual day job but first, this advice.  If you’re like a lot of people, you’ll be “enjoying” some quality family time this weekend.  I find Scotch helps.  A lot.


Treasury Guy