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The week of the Super Thursday

  • Andrew Masliwec, Analyst, Capital Markets

Hello,

Andrew filling in for Jason, who is off making the financial industry a better place one conference at a time.

Super Thursday
It was a busy Thursday this week. Americans filled bars at 10am to watch C-SPAN, the British hit the voting booths, European bankers spoke and the Bank of Canada gave its semi-annual Financial System Review.  To keep it short, as of writing there was nothing overly new from the Comey testimony that shook the markets.  Major market news from our neighbors in the south did come out later Thursday evening, as the House passed a bill that will rip up major aspects of a major banking regulatory bill (Dodd-Frank).  Theresa May, who called an UK election 3 years early, failed to gain a majority and the pound fell 1.5%. The European Central Bank kept its key rate unchanged. From my seat, what was supposed to be an eventful day, had no large effect on our markets. The Canadian dollar was steady overnight at 1.35/USD.

Economy
In their semi-annual report, Stephen Poloz and the Bank of Canada spoke in depth about the state of the Canadian housing market. The BoC saw increasing household debt and surging house prices as vulnerabilities but ones that will not bog down our recovering economy.  Poloz and co.  saw uninsured mortgages increase since their insurance rules took into effect, but they still require data from 2017 to assess the riskiness of the mortgages.

Net change in employment came in this morning, absolutely tearing up forecasts as job growth came in as +54k full time vs the +15k expected. Couple this with the minor increase in unemployment to 6.6% and the previous Q1 GDP growth rate of 3.7%, it is tough to see the Bank of Canada as “dovish” anymore.  The expectation by many is a hike in the overnight rate by the BoC in 2018.

Rates
Due to the stellar job numbers, yields this morning are opening higher (bond prices are lower). The 5 year GoC is now around 0.98% and the 10 year GoC yield is 1.45%.  The 5 and 10 year CMBs are up sharply this morning as well to 1.41% and 1.96% respectively. For context, the 5 year CMB closed at 1.36% yesterday and the 10 year at 1.92%.

Securitization
On the securitization front this week, Merrill Lynch Canada came to market with another syndicated “jumbo” NHA MBS deal. This marks the third NHA MBS transaction of 2017 for BAML, who have been far and away the most active in the syndicated NHA MBS space. The $1.1 Billion BAML deal had a WAL of 3.95 and priced over the GoC curve at +62.  For context, that is just slightly wider than their last $1.5Billion deal that came in as GoC +60. All in all, this was a strong deal which reinforced the demand for securitized mortgage products leading into next week’s reissuing of the 5 year CMB.

Another interesting tidbit occurred on June 1st last week:  the first ever non-bank issued syndicated NHA MBS matured – a deal brought to market by yours truly, First National. You can send your congratulations in the form of Tim Horton’s gift cards to marketing@firstnational.ca

No fun facts this week, I feel bad enough I bet a chipotle bowl on the Cavs winning.  Have a great weekend!

Andrew Masliwec
Analyst, Capital Markets