First National Financial LP

Market Commentary: An overview of this week by the Treasury Guy

  • Jan 12, 2024
  • Jason Ellis, President and Chief Executive Officer


Below is a quick day by day as I saw it this week.


Not much doing.  5-year GoC pretty much unchanged at 3.34%.  The only real news on Monday was that the Maple Leafs signed Nylander to an 8-year extension worth $92 million.  I’m wondering if it’s too late to shift my career focus from treasury guy to NHL winger.


In mortgage related debt capital market news, Scotia Capital issued a $932 million 5-year NHA MBS pool at a final spread of +60 bps.  There were 18 buyers, and the deal was 1.5x over subscribed.  For context, NHA MBS pools were issued at a spread of +45 bps last January, but this was still a good result against the prevailing backdrop and more recent issuance activity. 

Also on Tuesday, the CEOs of the country’s big banks met for a conference.  I expect my invitation was accidentally misplaced in the mailroom.  Generally, they expressed confidence that higher mortgage rates can be managed by borrowers and will not lead to a wave of defaults.  Many borrowers are still holding historically high savings, earning higher wages and have room to cut discretionary spending if necessary.  Treasury Guy concurs.

If you’ve been up at night worrying about renewals, I hope the following helps put you at ease:

5-year fixed rate mortgages funded in 2019 ranged from 3.49% in January down to 2.74% by December.  These borrowers were stress tested against floor rates between 5.19% and 5.34%.  By happy coincidence, the prevailing 5-year rate is between 4.99% and 5.24%.  This is EXACTLY what we prepared for. 

What is the impact in practical terms?  A mortgage taken at 2.89% in June of 2019 renewed at 5.24% in 2024 will see monthly mortgage payments increase by about $100/month for every $100,000 of original principal.  That’s a 20% increase ($572 from $468).  It’s significant.  Fortunately, according to statistics Canada, wages for salaried and hourly workers alike have increased between 16% and 20% since 2019.

It snowed in and around parts of the Greater Toronto Area on Tuesday.  All I have to say about the talk around the office is captured in the image below.  No further comment.

Top image says snow day in 1973 with a school bus driving through a snowstorm.  Below image is captioned snow day in 2023 and there is a school bus parked with little to no snow on the ground.




The final print of US CPI before the Jan 31 FOMC meeting was released.  Market was expecting headline CPI to be 3.2% YoY vs. 3.1% prior month.  Actual YoY CPI was reported higher than expected at 3.4%.  MoM, CPI rose 0.3% vs 0.2% expected and 0.1% in November.  Housing costs accounted for more than half the monthly increase as rents maintained their upward trend.  As the Fed has been warning, bringing inflation to heel will take longer than implied some of the aggressive assumptions reflected in the bond market over the last several months.  The consensus still calls for the Fed to begin lowering rates in 2024, but probably later than the market currently has priced.

Toronto’s proposed municipal budget was released on Thursday.  It included a 10.5% hike in property taxes.  The tax is still based on 2016 property values as the scheduled 2020 re-assessment work was cancelled due to the pandemic.  Once these new valuations are completed in 2024, the combination of the higher tax rate and a higher valuation could make for a significant additional burden for homeowners already managing higher mortgage payments as pandemic era mortgages start renewing in droves.  (see above for some comfort with respect to this higher debt service)

Commercial Update

Industrial vacancies have doubled YoY as pandemic era expansion is now being reversed via some subletting. For context, ‘doubled’ is a bit misleading.  The vacancy rates are now 2% vs 1%.  So, yes, still a very strong market.

Office vacancies are still rising.  It’s almost 4 consecutive years of increasing vacancies now.  New, top tier towers are mostly leased, but older buildings are suffering disproportionately, creating opportunities for tenants.  Unlike industrial construction, there will be little to no new pipeline for office construction any time soon. 

Office conversion into residential gets a lot of talk, but practically, it is very difficult given the fundamental difference in floor plates.  It’s a surprisingly large investment to make it work.  On the other hand, it would be fun if your new living room used to be Stephen Smith’s old office.

Today’s Top Tip

If you want to go fast, go alone.  If you want to go far, go together. 

Stay Classy,

Treasury Guy