First National Financial LP

Market Commentary: Reviewing the markets with Thomas Kim

  • Thomas Kim, Vice President and Managing Director, Capital Markets


Today is Wednesday and 41 days since I penned my last note here. I mention this because, during COVID19, time is either a salient point of reference or utterly meaningless to you.

Since my last note, 5 year GOCs have been in a 10bps range around 0.40%. The 10 year GOC yield is presently about 0.55%. CMB spreads have moved around but are a touch tighter than they were at 5yr +35 and 10yr +49.

The Bank of Canada’s intent to buy all the things has been expanded to include real return bonds. Recall that this is in addition to GOCs, T-bills, Canada mortgage bonds, provincial bills, provincial bonds, bankers acceptances, commercial paper, ABCP, and corporate bonds (excluding banks).

Ian Pollick at CIBC points out that the BOC’s efforts have been rather aggressive. Consider that, on a measure of central bank assets to GDP, the BOC amassed in weeks what took the U.S. Fed years to build up after the Global Financial Crisis.

This aggressive action has been so successful that some programs are not even being used.  For example, bankers’ acceptances balances have been declining for six weeks and the most recent four BAPF purchases (buys BA) have gone unused. Closer to mortgageland, CMHC’s most recent IMPP purchase in May went unused and the last purchase in April saw only $10 million of uptake. 

As a point measure of investor sentiment, the VIX index is around 27, down from a recent April high of 45, and the CDX IG index is now at 79, down from a recent April high of 98. I guess that’s two points. (The numbers don’t mean anything. Just know that lower means traders feel better about life, the universe, and everything).

Back to mortgageland: the NHA MBS market saw two ‘jumbo’ ($1 billion-ish size) 5yr 975 deals in May. First up was Merrill Lynch on May 7th at a spread of curve+65. Following that was Scotia Capital on May 27th at a spread of curve+61. Spreads are moving in the right direction.

To close, whether or not you notice that time is marching on, the markets are feeling a little bit better every week.