First National Financial LP

Market Commentary: A review of this week’s changes in yields

  • Neil Silverberg, Senior Analyst, Capital Markets

It was Groundhog Day on Tuesday and while everyday has felt the same since March 2020, surprisingly there are some things that have actually changed from the same time last year.

My Work Attire
February 5,
Monday, January 4, 2021  Wednesday, February 5, 2020
    Sweatpants - Day 325  Sweatpants - Day 294  Suit & Tie
GOC Yields  5-year  0.49  0.39  1.39
 10-year  1.00  0.68  1.39
 30-year  1.58  1.23  1.51
CMB Yields  5-year  0.70  0.62  1.71
 10-year  1.32  1.09  1.77
Investor Sentiment   Tight spreads, strong demand for credit Tight spreads, strong demand for credit Tight spreads, strong demand for credit
Maple Leafs Record    8-2-1 (big win last night)  N/A  28-19-7

There are a few noteworthy items in the table above, and no it’s not the fact that I have been wearing the same pair of sweatpants for almost a full year now. Last week I mentioned that yields had been rangebound - since then, they have been anything but. Looking at the larger picture since the first trading day of the year, we have seen some aggressive curve steepening take place in the 10-year maturity with GOC yields up 32 bps since Jan 4th and CMB yields up 23 bps. The 5-year bond hardly moved over the same period.

The spread on the 10y-5y curve is currently 50 basis points. This time last year, it was -0.2 basis points and went as low as -2.1 basis points on February 20th.

Both the U.S. and Canadian yield curve has been steepening since August but the reasons for the recent sell-off differ. The U.S. is further ahead on vaccinations moving towards herd immunity and Canada is much further behind. The U.S. has a growth element embedded in the bond market causing real yields to increase however Canadian rates are instead incorporating more “forecasted” growth in their curve.


So what does this mean exactly?

For now, the central bank is allowing the market to do their heavy lifting with yields beginning to price in target inflation. Eventually, however, central banks may need to begin reigning in their lax monetary policy to help curb inflation. This will be a tricky operation since the lines between monetary and fiscal policy are as blurry as ever.

More importantly, what does this mean for you?

First National offers flexible rate lock options that can help you mitigate your interest rate risk in this type of environment. This can be particularly useful during the extended CMHC approval time periods which can take upwards of three or four months.

Furthermore, 5-year terms are readily available to take advantage of the flatter section of the curve.  For additional details contact your sales advisor today.

In case you missed it

The K shaped recovery is alive and well demonstrated in the January unemployment numbers released this morning.  A loss of 213k jobs and an increased unemployment rate from 8.6% to 9.4% was announced.  Job losses were overwhelmingly concentrated in Ontario (-153k) and Quebec (-98k), and in retail (-168k) and food services (-75k). Full-time jobs were up 13k and the goods sector up 23k.

Lastly, Jeff Bezos is stepping down as Amazon’s CEO after an impressive 27-year run. The company also announced that they achieved the $1 billion-a-day revenue mark in 2020! I think the takeaway here is that we are all spending too much time and money online shopping. That being said, who can resist 1-day delivery? Not me.  

Thanks for reading and have a good weekend.