The return of the Treasury Guy, Jason Ellis

  • Jason Ellis, Chief Operating Officer

Greetings Canadian Mortgage Market Participants,

It’s been many moons since my last post and I have definitely fallen out of the habit.  Today’s note is the result of relentless harassment by the mean girls in marketing and the fact that Friday’s double employment reports gives me something specific to talk about. 


The Canadian employment report ain’t pretty, she just looks that way.  The headline number indicates a solid increase of 27,700 full time jobs compared to survey expectations of 5,000 and the unemployment rate fell from 5.7% to a 45 year low of 5.4%.  Unfortunately, the details are less impressive.  Self-employment jumped by 61,000 leaving declines of 13,000 and 21,000 jobs in the public and private sectors respectively.  The jobless rate decline was also wearing a little lipstick in the form of a two-tick drop in the participation rate.  Finally, the hours worked actually fell 0.3%.  Overall, I rate last Friday's job report as a solid “meh”.

Meanwhile, down in ‘Merica, nonfarm payrolls rose by 75,000 jobs.  That’s well short of the 175,000 expected.  In addition, the prior two months were adjusted down by a combined 75,000.  Probably not a disaster considering an unemployment rate of just 3.6% but this could be worrisome if this is the beginning of a trend as employers start pumping the brakes on hiring as uncertainty related to trade tensions persist. 

Monetary Policy

It’s unlikely the Fed will react to one payroll report but given the backdrop of a potential trade war and low inflation it won’t take much more to trigger a rate cut.  The Fed next meets on June 19th and the probability of a cut stands at 30%.  Perhaps more telling is that the probability of at least one cut by the September 18th meeting is almost 100%.

The Bank of Canada has its next meeting on July 10th and the probability of a cut from the current overnight rate of 1.75% is just 10%. 


5 year Government of Canada bonds are at a two year low of 1.30%.  For context, they were trading as high as 2.50% in November last year.  Before you start thinking we can’t possibly go lower from here, don’t forget that we spent most of 2015 and 2016 below 1.00% and bounced of 0.50% a couple of times. 

10 year Government of Canada bonds are also touching two year lows at 1.45% after trading as high as 2.60% in November.  Back in 2016 they actually dipped just below 1.00% on a couple of occasions.

By comparison, US Treasuries are currently trading at 1.82% and 2.07% for 5 and 10 year terms respectively.


In residential mortgage securitization news, Merrill Lynch Canada launched at $780 million NHA MBS offering literally minutes ago.  This is Merrill’s first syndicated offering since December 2017.  A general lack of new MBS supply should help this deal fly off the shelf.  They must be confident…bringing a deal of that size on the first warm and sunny Friday of the season wouldn’t be my first choice.

Other Stuff

I sincerely appreciate the two or three of you who have expressed great disappointment at my lack of publication in recent months.  I wish I had something pithy to say to warrant your support but I can’t seem to find the inspiration today.  I vow to return with more regular commentary and reporting on such pressing topics as the “orange-ness” of Kraft dinner in the coming weeks. 

For now, I will bid you a fine week…and hope that you treated yourself on Friday which was National Doughnut Day (mmmm, doughnuts)!


The artist formerly know as Treasury Guy…putting the “COO” in COOL since October 2018.