A look at this week’s New Issues

  • First National Financial LP

Greetings Woodchuck Chuckers,

That’s right.  It’s Groundhog Day...again.  It’s still just once a year isn’t it? 

I just saw Wiarton Willie crawl out of his den on TV to crowds chanting his name.  Alas, he predicted six more weeks of winter.  It was pitiful.  A thousand people freezing their butts off waiting to worship a rat.  This was one time where television really failed to capture the true excitement of a large squirrel predicting the weather. 


Bond                     Current                 Change since last week

2s:                          1.86%                    +5 bps

5s:                          2.15%                    +10 bps

10s:                        2.38%                    +13 bps

30s:                        2.44%                    +11 bps

Economics, News, etc.

Change in Nonfarm Payrolls is hot off the presses.  200,000 employees were added to US business payrolls in January compared to 180,000 expected and 160,000 last month.  Hourly earnings rose a more-than-expected 2.9%.  That’s the fastest annual pace since the recession ended.  In case you ever wondered, as the name suggests, the Nonfarm Payroll statistic excludes farm workers.  It also excludes unincorporated self-employment, employment by private households, intelligence agencies and the military. 

On Wednesday, Canadian GDP for November came in at +0.4% month over month, matching consensus.   Growth was broad based and led by manufacturing.  The reading was the best since May and a solid bounce back from October’s weaker than expected flat result.  GDP is now up 3.5% YoY.  The report shouldn’t change much from a policy perspective for the Bank, which remains in a dovish (aka cautious) tightening mode.  Next meeting for Poloz and the gang is March 7th where the probability of a hike currently sits at 32%.

Down south, the FOMC left rates unchanged at their meeting on Wednesday.  As expected.  The accompanying statement delivered a modestly hawkish tone, noting that inflation is moving higher.  As expected.  The reaction in the rates market was muted.  As expected.  The implied probability of a hike at the March 21 meeting is now fully priced into Fed Fund futures.  That rate hike, when it comes, should be, as expected…especially after today’s strong payroll data.

FYI: This was the last FOMC meeting with Janet Yellen as Chair.  I can’t think of the new guy’s name right now…but you can look it up on the Google if you care. 

Also this week, the POTUS delivered the SOTU.  Meh.  According to news sources, Melania wore a white pant suit and Trump said some stuff.  White after Labour Day?  What was she thinking?! 

I was going to make a joke about the State of the Union address being the ‘most watched ever’.  But Trump actually did it.  On Thursday morning he actually said the people who watched was “the highest number in history”.  It wasn’t.  Chalk it up as another ‘alternative fact’ and move on. 


Just a quick note to highlight the fact that after first month of the New Year, the S&P TSX is down about 1.4% or 14% annualized.  The S&P 500 is up about 5.7% YTD or 85% annualized.  On the bright side for Canadian investors, in USD terms, the S&P TSX is actually up 3.2% annualized, thanks to the Loonie which is up smartly…especially compared to Bitcoin which is now below $8,000 and down over 50% from highs set in December.

It’s been one of the best starts to a year for the S&P 500 in recent history, supported by strong corporate earnings, economic growth, and optimism over US tax cuts. Use caution however…uncertainty is creeping into equity markets as higher rates on government bonds starts to test the appetite for stocks at these elevated levels.  

New Issues

Central 1 Credit Union, rated A (high), issued a $350 million 3-year floating rate note at 3-month CDOR +35.  The deal was upsized from $200 million and priced 2bps tighter than guidance.  In other words, it went well.  For context, the March 2021 CMB FRN is currently trading around 3-month CDOR -18.  3-month CDOR is currently 1.68%. 

Bank of Nova Scotia, rated AA, issued a rare 10 year deposit note at GoC +80bps.  The market happily bought all $2 billion offered.  

RioCan REIT, rated BBB (high), issued $300 million fixed rate notes maturing in September 2023 at GoC+105.  Over 60 investors and 8x oversubscription helped pricing tighten a full 5 bps in from guidance.  I can only assume Treasury Guy at RioCan is feeling pretty good about himself. 

Speaking of new issues, we are expecting a 10 year fixed and 5 year floating CMB issue to be launched around February 14th.  It’s a Valentine’s gift from our friends at CMHC.

The 10 year will be a re-opening of the March 2028 maturity date in the range of GoC +37.0 bps.  That’s 8.5 bps tighter than the original issue spread in November.  At current levels, the bond asset-swaps to 3M CDOR +1.7bps, right around the tightest level seen in three years.

The 5 year FRN will be a re-opening of the March 2023 maturity date.  Current market levels suggest 3M CDOR -7.1 bps.  The FRN was originally issued in November at CDOR Flat. 

Mortgage Regulations

Credit Unions in Quebec may soon face the same mortgage qualification rules as OSFI regulated banks.  The provincial regulator is poised to align its guidelines as those imposed on federally regulated lenders and require credit unions and co-ops to adopt the 2.00% ‘stress test’.   Other provinces are split however.  BC is not considering changes and Ontario is uncertain.  In the meantime, the country’s Credit Unions have enjoyed a surge in conventional mortgage market share.   Time will tell if they will rue the decision.

In Closing

Some advice for the weekend: Clean up your room, stand up straight, pick up your feet, take it like a man, be nice to your sister, don’t mix beer and wine…ever.  Oh yeah, don’t drive on the railroad tracks.

Winter, slumbering in the open air, wears on its smiling face a dream…of spring.


Treasury Guy