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Employment rates decrease while bond yields remain unchanged

  • Jason Ellis, Managing Director, Capital Markets

Good Morning.

Today’s employment data
Canada added 43,900 jobs in October, much stronger than the expected decline of 15,000.  The unemployment rate was unchanged at 7.0% as labour force participation increased.  Details, however, show stronger part time hiring at +67,000 while full time employment actually fell by 23,000.  

In the US, Nonfarm Payrolls came in just below expectations at +161,000 but with an upward revision to the prior month data.  The report also featured an uptick in wages with average hourly earnings increasing 2.8% over the year.  The unemployment rate fell from 5.0% to 4.9%.  The figures are likely to keep the Federal Reserve on track to raise rates in December.

Bond yields are relatively unchanged following the reports.  5 and 10 year Canada’s are trading around 0.68% and 1.18% respectively.   Both are a 2-3 basis points lower than a week ago.

Corporate supply highlights
Bank of Montreal issued $2 billion 5 year fixed rate deposit notes last week at +94.  That’s about as tight as senior bank debt has been this year.  Deposit notes were being issued around +135 back in January.  We love narrower spreads.

Institutional Mortgage Securities Canada (“IMSC”) also priced a $333 million multi-tranche CMBS offering, building on the success of RBC’s recent issue.  We love a resurgent Canadian CMBS market.

Canada Housing Trust will be in the market later this month with 10 year fixed and 5 year floating rate issues.  We love CMB bonds.

FOMC and BoC and TD
The FOMC met on Wednesday.  Rates were left unchanged as expected but the related statement noted that inflation has trended higher and was tweaked to suggest comfort with a possible December hike.  The market reaction was relatively muted with rates rising 1 to 2 basis points in the aftermath.  The implied probability of a hike at the December 14th meeting is now 78%.

The Bank of Canada meets on December 7th.  No change in rates is expected.

Despite the lack of monetary policy changes from the BoC, TD Bank increased their ‘Mortgage Prime Rate’ by 0.15% from 2.70% to 2.85% this week.  The change only affects existing TD Variable Rate Mortgage customers.  The bank’s ‘other prime rate’ is unchanged at 2.70%.  Lines of Credit and other prime based bank products are unaffected.   None of the other Schedule 1 banks have shown any inclination to follow TD’s lead.  In fact, it’s not clear that any other bank has a separate and distinct prime rate for mortgages.   The change was mentioned in passing but the media seems to have largely ignored the move. 

The Election
Of course, the elephant (and donkey) in the room is the U.S. Election next Tuesday.  Shockingly, it’s not yet a slam dunk for the Democrats.  All we can do is wait and watch and hope we don’t get another shocking ‘Brexit’ type result.  When Keymaster of Gozer and political commentator Vinz Clortho was asked what a Trump victory would mean, he was quoted as saying:

It would be a disaster of biblical proportions.  Fire and brimstone coming down from the skies.  Rivers and seas boiling.  Forty years of darkness.  Earthquakes, volcanoes, the dead rising from the grave.  Human sacrifice, dogs and cats living together – mass hysteria.  You will perish in flame!  You and all your kind!” 

Finally, don’t forget that daylight saving time ends on Sunday.  Time ‘falls back’ when clocks hit 2:00 am on Sunday November 6th.  Of course, never mind if you’re in Saskatchewan.

Have a great weekend,

Treasury Guy