First National Financial LP

Market Commentary: CMB survives

  • Paul Uffelmann, Vice President, Capital Markets

The Federal Government’s highly anticipated (at least by me) Fall Economic Statement was released yesterday – a key takeaway being that the market-based CMB survives.

Consolidation into the government’s regular borrowing program is officially off the table. The market had moved towards the view of this being the highest probability outcome after the increase in CMB annual issuance from $40bn to $60bn announced early this fall. With this being the base case, the more consequential news for the market was the further announcement that the government would purchase up to $30bn of annual CMB issuance. Some government involvement was hoped for, but this was far less certain. The success of the $8bn November CMB, the largest ever, without government participation added to the uncertainty. 

This is a fantastic outcome and is what First National advocated in the consultation process as it increases the amount of funding available, lowers funding costs (10yr CMB spreads over GoCs have tightened ~7bps since the announcement), while continuing to provide an effective hedging instrument. With this uncertainty behind us, we should see the return of the CMB as a very stable and low-cost funding option. First National continues to speak to CMHC and Department of Finance representatives about additional steps to help support the multi-family market.

Also released yesterday were October’s CPI data, in line with expectations with a core CPI measure being slightly lower than anticipated. This supports the view that rates have peaked and makes the BoC's job a bit easier. No change is anticipated at their next meeting on December 6 and at least one cut is expected in the first half of next year. 5yr GoC yields continue to drift down and are below 3.75% today.

The CMB volatility and on-going rate hikes were two major hurdles that should now be behind us and should help clear a path for more multi-unit rentals. Your First National representative is happy to discuss and help you think through your next steps.