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Jason Ellis looks at rates, securitization and currency news and more.

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


Welcome to Friday.  Sorry…no opening gibberish today.  Let’s get right to it. 

Very briefly, 5’s are trading around 1.67% and 10’s are around 1.91%.  Just a couple basis points higher than a week ago and just a couple basis points lower than a month ago.  All told, GoC yields have been relatively range bound. 

Securitization and New Issue News
Laurentian Bank came to market yesterday with a teeny-tiny 5 year NHA MBS offering of $200 million.  The deal was ‘priced to sell’ at +53 which included 2-3 basis points of new issue concession…possibly due to the relatively small size.  The book was 2.5X oversubscribed and immediately broke 2bps tighter in secondary trading.   All told, a good result for Laurentian and the market.

The transaction brings total 2017 ‘syndicated’ MBS issuance to $6.5 billion with spreads steadily moving tighter over the course of the year.  In fact, a new 5 year MBS issue in January traded in the context of +70 as compared to the +53 yesterday.  A reduction in insured and insurable mortgage volumes have probably contributed to a sense of scarcity and led to narrower spreads.

On Monday, BNS issued a $2.0 billion 5 year deposit note at GoC+72.  That’s a big deal and that’s a tight spread.  In fact, on a swapped basis, that’s equivalent to CDOR+36 and is the tightest spread on a new deposit note since 2010.  Year to date total deposit note issuance is now over $100 billion.  Record issuance was set back in 2013 at $109 billion.

Next week will bring the new 10 year Canada Mortgage bond.  Expected maturity date will be March 2028.  The bond will likely be re-opened in February and May 2018.  Current market levels indicate a spread in the range of GoC June 27’s +49.0…or about +44.5 over the curve.  Asset swap to 3month CDOR is +14.8bps.  Canada Housing Trust will also be launching a new 5 year Floating Rate note due March 2023.  Currently market levels suggest pricing around 3month CDOR +1.5bps.  That deal will be re-opened in February.

It also occurs to me that I haven’t posted since RBC issued its most recent REAL-T CMBS transaction.  The deal priced on October 24th for settlement on October 31st (just in time to get the mortgages off the banks’ balance sheet before fiscal year end).  The deal totaled $373 million and featured a $114 million AAA rated 3.5 year ‘A-1’ tranche issued at +125 and a $233 million AAA rated 7 year ‘A-2’ tranche issued at +175.  All tranches were oversubscribed and priced at the tighter end of guidance.  CMBS lives another day!  The last Real-T deal was over one year ago in September 2016.  Back then, the A-1 and A-2 tranches with similar weighted average lives to this deal were issued at +125 and +165 respectively.

Equity, Commodity and Currency news…if you care
Equities look to open lower again today as worries about tax reform continue to weigh on the market.  No need to get too fussed though.  Your retirement isn’t in jeopardy.  North American equity markets are still up smartly this year and not far off their all-time highs.  

Crude oil prices continue to hold near two-year highs.  Expectations of extended OPEC production cuts have kept prices stable.  West Texas Intermediate, aka Texas Tea is trading around $57/barrel.  By comparison, Crown Royal Rye Whisky currently trades at $29.45/bottle or $6,243/barrel. 

In currency news, the Canadian dollar is currently trading around $1.26 and has strengthened relative to the USD this week as US tax reform timelines remain uncertain.   CAD was as weak as $1.37 back in May, so your trip to Disney this Christmas looks a little more affordable now.  More importantly though, Bitcoin dropped below $7,000 this week after falling $1,000 from all-time highs on Wednesday.  Despite the decline, Bitcoin is still up more than 600% this year.  I guess that’s good, but to be honest, I’m still not really sure what Bitcoin is. 

First National
First National announced third quarter results back on October 24th.  The news featured the announcement of a special dividend of $1.25 per common share.  That’s a $75 million bonus for First National shareholders.  Moray and Stephen making it rain!  Also featured prominently was news that mighty First National has now surpassed $100 billion (picture Dr. Evil for effect) in mortgages under administration.  FN is trading around $29.50 with year to date total return of 16.15% compared to 7.68% for the TSX.   Not too shabby.

Finally, the tragic loss of former Blue Jay great Roy ‘Doc’ Halladay turns my mind to baseball.  In honour of Doc, I’ll leave you this week with some wisdom and life lessons as dispensed by the great Yogi Berra:

  • When you come to a fork in the road, take it;
  • You can observe a lot just by watching;
  • The future ain’t what it used to be;
  • A nickel ain’t worth a dime anymore, and;
  • Always go to other people’s funerals, otherwise they won’t come to yours.

Bond market closes early today…get your mortgage rates early.

Be sure to drink a toast to our veterans this weekend…

Lest we forget,

Treasury Guy.
Jason Ellis, Senior Vice President and Managing Director, Capital Markets