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Read Andrew Masliwec’s update on the BOC’s unchanged interest rate

  • Andrew Masliwec, Analyst, Capital Markets

Greetings,

I know our vast reaching and global reader base has been waiting on this commentary all week to see what happened with the Bank of Canada interest rate decision. So I will cut right to the chase. But first, let me fill you in on some other stuff so I can fill up some white space on this page.

The Markets
The On-the-Run Government of Canada 5 year bond is currently yielding around 1.66%, while two weeks ago it was about 1.61%. The longer end 10 year bond, is currently yielding 1.86% while two weeks ago it traded at a high of 1.88%. The minutia of why shorter and longer term yields don’t change in unison may make your Friday seem that much longer, so just know that shorter term and variable bonds are more effected by changes in the target rates set by the BoC.

On the equity side, it looks like the TSX started the week at around $16,069 and as of writing is $16,081. The new tax bill passed in the USA caused some mid-week volatility in tech stocks which dragged the index lower..but now it’s higher so there’s that.  In completely unrelated news, the flavor of the week, Bitcoin, has now reached a record 20,000 Canadian Loonies or 61,000 Turkish Lira. No news yet on what it is.

Issuances
Merrill Lynch Canada is coming to the fixed income market this Friday morning with a new NHA MBS jumbo pool. It’s sized at around $787 Million with a coupon of 1.84% and matures in December 2022. The pool was priced at 45bps over the appropriate GoC curve. What does it all mean? Overall, the spread is tighter than last issue, which is good news if you are issuing the bonds.

Bank of Canada/Economic news
As was widely expected, if you’ve been reading our commentary, the Bank of Canada decided to leave the overnight rate unchanged on Wednesday.  The BoC delivered what many considered a ‘dovish’ message. They once again reiterated that they are concerned about slack in the labour market and repeated caution about making future aggressive adjustments to their policy.  They mentioned “considerable uncertainty” which is most likely in regards to the new housing regulations, wage legislation and most importantly, NAFTA negotiations. Economists are mostly forecasting a spring 2018 rate hike.

Housing had a couple key stats released this week as well. We had Canada Housing Starts come in at 252.2k vs the 213k expected, with higher being better. The large jump was mostly attributed to Ontario, with the good October weather most likely being the culprit. Vancouver also saw their home prices rise, as prices are up 14% from a year ago. Single family detached or the average benchmark home, rose 6.1% y/y to $1,608,000.

Finally, 2017 is coming to an end and the world’s finest Swedish streaming service, Spotify, released statistics on my usage this past year. I amazed myself by putting in a solid 32,479 minutes of listening and only skipped 413 songs. And they say millennials have short attention spans.  I highly recommend checking it out yourself, if only to see a fraction of the data they have on your listening habits.

Turn up the good, turn down the suck this weekend.

Andrew Masliwec
Analyst, Capital Markets