Many thanks to Young Andrew for pitching in around the place last week and filling in on the commentary. He wasn’t terrible, right?
At the moment, 5 year Canada bonds are around 0.99% just one basis point lower than last week but back under 1.00% for the first time since November. 10 year Canada bonds are trading around 1.54% and are unchanged since the end of last week.
I should disclose that it’s actually Thursday evening as I write this as I won’t be in for press time tomorrow. The only reason I mention this is that tomorrow morning brings the always exciting double employment data for the US and Canada at 8:30am EST. You may want to see how those came out before quoting my rates above. Expected Net Change in Employment for Canada is +10k with Unemployment unchanged at 6.7%. Expected Change in Nonfarm Payrolls in the US is +190k with a small uptick in Unemployment from 4.5% to 4.6%. Remember, if the net increase is bigger than expected, bond prices should fall and rates should move higher. Employment makes a central bank ‘hawkish’.
Speaking of Central Banks, the Fed left rates unchanged on Wednesday (as expected). They did, however, strike a hawkish tone in the related commentary and played down Q1 GDP softness, describing it as “likely transitory”. The FOMC appears to be on course to raise rates in June and again later this year. The implied probability of a 25bp hike at the June 14th meeting stands at 93.8%. US 5 year bonds are trading about 8bps higher since the May 3rd meeting.
The Bank of Canada next meets on May 24th. No change expected to current overnight rate of 0.50%.
Alternative Lending News
In a news release on Wednesday, Equitable Bank announced that RBC has joined the country’s other largest banks in a syndicate that has already committed to provide $2 billion of standby financing. That’s great news. Since the start of the week Equitable’s stock has climbed more than 25% after falling sharply last week.
Unfortunately, the news isn’t as good at Home Capital. HCG saw rating agency DBRS further reduce its rating to CCC. DBRS said the downgrade is connected to Home Capital’s announcement on Tuesday that it will postpone the release of its first quarter financial results. Home’s stock has fallen back to the lows set last week.
We are expecting a re-opening of the 2.35% June 2027 bond during the week of the 15th. Current market levels indicate a spread over Canada June 2027’s of +49.0bps…just a touch wider compared to +47.5 when the bond was first launched in February.
We are also expecting a new Floating Rate Note (“FRN”) due September 2022. Current market levels indicate a spread over 3 month CDOR of 8 or 9 bps.
So how did Mr. Trump do in his first hundred days, and what have we learned of him? That he is off to the worst start of any president in modern U.S. history – even Ronald Reagan accomplished more in 100 days, and he took a bullet in the chest on day 69. And that he is so temperamentally ill-suited to the job and to the office he holds that he risks becoming a historical after-thought of the same calibre as some mad medieval monarch. (Note: As much as I’d like to take credit for that pithy passage, it was actually lifted from an editorial in the Globe and Mail.)
In positive, less medieval monarch type political news, a very strong showing by independent centrist Emmanuel Macron in this week’s French leadership debate has put him well ahead of far-right National Front leader Marine Le Pen in the poles. Score one for civilization. The result was also supportive of an overall positive risk tone in markets this week, so that’s nice.
Random Economic Indicators
Crude oil suffered its 5th consecutive losing day on Thursday. Texas Tea is now worth about $45.50/barrel. If you want context, that’s just $0.29/litre. For comparison, Evian bottled water is $1.24/litre at Walmart. Go figure. Crude started the year around $54 and is at its lowest price since November last year.
Gold is down from recent highs at $1,228/ounce but is still up from $1,150 at the start of the year.
Finally, among the less often quoted commodities, Cream Cheese prices are up 31% on the year. Apparently hipsters with beards are consuming something call unicorn toast at an alarming pace. I don’t know…you’ll have to look it up.
Several people have been asking about the possibility of a housing bubble in Toronto. Bank of Canada Governor Stephen Poloz was quoted last night as saying that recent gains in Toronto home prices were not sustainable and that the city’s housing market had elements of speculation. What do I think? I’m not sure. It’s very tough to make predictions, especially about the future.
Treasury Guy OUT.