First National Financial LP

Market Commentary: Read a review of this week’s budget and BoC announcement here

  • Neil Silverberg, Senior Analyst, Capital Markets


Based on all the amazing feedback marketing tells me that they received on last week’s market commentary, I have received the curtain call and I am back this week with your post announcement wrap-up. I didn’t ask for proof from marketing since I know better than to ask questions that I don’t want answers to.

Now I am not sure that you can call me Treasury Guy just yet, but I am working on getting the trademark rights from Jason – he is a tough negotiator.

Rates and Curves

As of Thursday’s close, the 5 and 10-year Government of Canada (“GoC”) bonds were trading at 0.94% and 1.52% up 2 and 4 basis points respectively from last week.

The 5-year Canada Mortgage Bond (“CMB”) remained flat on the week closing on Thursday at 1.19% and the 10-year CMB was up 5 basis points on the week and closed at 1.91%. Credit spreads on the 5 and 10-year CMB remained relatively flat on the week as well.  

Federal budget

The Federal government released its 2021 budget on Monday, introducing approximately $100 billion in new policy actions over the next 3 years. As mentioned last week, the rates market is primarily looking at what issuance plans will be required to support the federal agenda.

Within the announcement, there were references for additional plans for an increase in bond issuances (compared to pre-covid levels), especially toward the longer end of the curve.   The finance department anticipates its average term to maturity for domestic debt to reach a level not seen in more than 40 years. The government wants to issue more than 40% of its bonds in maturities of 10 years or more, up from 15% pre-pandemic. That also includes a re-opening of the 50-year issue.

Canada’s government also plans to issue its first ever green bond this fiscal year.

Bank of Canada Rate Announcement

On Wednesday morning the Bank of Canada announced their intention to begin reducing the size of weekly bond purchases from $4 billion per week to $3 billion beginning next week.

The overall statement was interpreted as hawkish by the market, especially given the fact that the Monetary Policy Report brought forward the expected closing of the output gap from 2023 to mid-2022. The BoC is also targeting their first-rate hike in the second half of 2022 however Governor Macklem maintained in his post announcement press conference that their forward guidance is not calendar based but instead outcome based.

Speaking of potential outcomes, the Bank also lifted its forecast for 2021 GDP growth from 4.0% to 6.5% - quite a jump! Strong foreign demand, fiscal stimulus and economic resilience were cited as factors sponsoring this change in projected growth.

Additional details on the announcement can be found here.

What you should know:

The market reaction was swift with yields on both GoC’s and CMB’s jumping up 7 basis points following the announcement and finally settling down by mid-day at an increase of 4 basis points. As mentioned above, we are relatively flat on the week but the continued volatility in rates should be noted – especially if you are looking to fix your mortgage rate.

On both the news of the federal budget and the BoC announcement, the GoC yield curve did steepen slightly however yield moves across the curve continue to be biased higher. Additional tapering isn’t expected until later this year once the Bank can monitor the results of the most recent measures put in place in addition to watching Canada’s economic growth trajectory.

Furthermore, for all of you cross-border real-estate investors, the Canadian dollar strengthened against the USD by approximately 1 cent from the time of the announcement. These gains could however be partially reversed should the U.S. Fed follow suit and pull forward and/or revise their own economic projections at their meeting next week on April 28th.

Now that the annual April snowfall is out of the way – and yes, as much as we all hate to admit it, it is an annual occurrence,  it seems we have all run out of excuses for procrastinating on setting up the patio furniture, washing the salt off your car or going for a run outside. So, on that note, I sincerely hope you all have a productive weekend and thanks for reading.