Market Commentary: A look into this week’s rate changes, spreads and ECB update

  • Jason Ellis, Chief Operating Officer

Good Morning Mortgage Market Participants,

It’s Friday the 13th.  Bad things might happen.  I’d wish you the best of luck but I believe luck is a concept created by the weak to explain their failures. 



The rally in equities and the rout in Government bonds continued all week as optimism returned on the trade front and an uber-dovish ECB spurred on markets.  

5 year GoC yields are now yielding 1.48%.  That is 33 basis points higher than the recent low set last Wednesday.  10 year bonds are up 35 basis points to 1.47%. 

Don’t worry too much if you haven’t locked in your mortgage coupons yet.  5 year rates are still relatively low.  In fact, they are still 100 basis points lower than a year ago.


The European Central Bank (“ECB”) cut rates by 10 basis points to -0.50% this week and intends to keep them there (or lower) for the foreseeable future.  It also announced that it would re-start its quantitative easing (“QE”) program in November.  (Treasury Guy Tip: QE is a form of monetary policy in which a central bank purchases securities in the market in order to increase the money supply and encourage lending and investment).  The ECB also lowered all inflation forecasts and Draghi says risks to the outlook remain tilted to the downside.  In case you were wondering, THAT is a ‘dovish’ central bank.

Meanwhile, in the U.S., core CPI rose 0.3% from the prior month and was up 2.4% from the year earlier. Both exceeded the median estimates.  Trump is unfazed by the signs of inflation.  The POTUS with the MOSTUS tweeted that “the Fed should get our interest rates down to ZERO or less” and went so far as to describe the Fed governors as “Boneheads” in the tweet.  Fortunately, financial markets (and the FED) now ignore just about any tweet from Trump.

The Fed meets next Tuesday and the implied probability of a cut (based on Fed Fund Futures) is 98.5%.  But NOT because Trump told them to do it.


US Retail Sales data released this morning advanced more than forecast (0.4% vs 0.2%) as Americans kept buying cars, bacon, and GI Joe’s with Kung-Fu grips.  The news helped send treasury yields higher still as consumers continue to buoy an economy beset by risks from trade and global weakness.

Canadian housing starts rose slightly to 226,600 annualized units in August, stronger than expected and continuing the trend of strong building activity.  Regionally, Ontario led the increase and B.C. was the weak spot in the report but the province hasn’t buckled despite the correction in resales and prices.  Bottom line is that construction in Canada looks solid.  Perhaps it worth noting that 5 year mortgage rates are 75-85 basis points lower than a year ago which has certainly helped moderate the impact of some the regulatory changes we’ve seen in the lending space.

New Issues

Bank of Montreal issued a $1 billion 5 year NVCC subordinated debt offering on Monday rated A (Low) by DBRS at the tight end of guidance at GoC+152.  (Treasury Guy Tip: Non-Viable Contingent Capital or NVCC bonds emerged after the global financial crisis.  The bonds automatically convert to common equity upon a trigger event that could otherwise leave the bank as non-viable and in need of government intervention).

The province of Ontario re-opened its December 2050 long bond at a spread of GoC+81.5.  The bonds are rated AA-Low by DBRS.  PEI followed and issued their own 2051 long bond rated A by DBRS at GoC+104.5.  Finally, Alberta jumped on the long bond train with their own 2050 bond issue rated AA (negative) by DBRS and priced at GoC+92.5.  If you’re an investor interested in highly rated government debt that comes with a spread, then call your friendly neighbourhood MBS trader.  You can buy NHA MBS rated AAA but priced with spreads at spreads WIDER than Ontario bonds.  MBS even come with timely payment of principal and interest guaranteed by the federal government and the Queen! 

Finally, Canada Housing Trust is issuing a new ‘5-year’ CMB issue today.  The December 2024 maturity date is expected to be priced in the area of GoC+32.5 basis points.  Another fine value proposition.


Prime Minister Trudeau formally dropped the writ to call for a federal election on October 21st.  Let the shenanigans begin!  Most recent polls have the ruling Liberals and the opposition Conservatives in virtual dead heat with about 34% of the popular vote. 

My idea of a perfect government is one guy who sits in a small room at a desk and the only thing he’s allowed to decide is who to nuke.  The man is chosen based on some kind of IQ test, and maybe also a physical tournament, like a decathlon. 


Fabio Mahoney, Masonry Inspector and Pavement Smoother writes: “I’ve started new job and I’m having a tough time making new friends.  What should I do?”

You’re asking the wrong Treasury Guy.  The less I know about other people’s affairs, the happier I am.  I’m not interested in caring about people.  I once worked with a guy for three years and never learned his name.  Best friend I’ve ever had.  We still never speak sometimes.  When people get too chummy with me I like to call them by the wrong name to let them know I don’t really care about them.  Thanks for writing…Frank.

Now get out there and enjoy the weekend and remember, if you’re feeling down for any reason, there has never been a sadness that can’t be cured by breakfast food.

Have a great weekend. 

Treasury Guy