Before I get into the latest breaking mortgage and fixed income news, it’s worth mentioning that both the NBA and NHL playoffs are starting this week. This year, only two Canadian teams made the Eastern Conference playoffs: the Toronto Raptors and the Toronto Maple Leafs. Since we’ve talked about the correlation between playoff success and GDP growth in the past, I am sure everyone in this great nation is cheering for Toronto teams to have championship seasons!
A little refresher on what happened to major rates since last week. The 5 year Government of Canada closed 2.00% even last Friday and is currently at 2.11% or 11bps higher. The 10 year had a similar move, closing at 2.14% last week and is about 2.25% as of writing. It is worth highlighting the 5-10 spread which has narrowed substantially from a year ago. In April 2017, the difference between 5 and 10 year GoC yields was 45bps and has been decreasing steadily to today, at around 14bps. A recent 10 year deal for CCL Industries, unsecured and rated BAA2/BBB, was priced at +165 over the 10 year, which exemplifies some tightness in the sector. The key takeaway is, 10 year borrowing rates do seem narrow compared to the 5 year, so it could be worth taking a look at longer term borrowing opportunities with your local First National commercial expert.
Business Outlook Survey and Rate Hikes
Next week, April the 18th, the Bank of Canada is scheduled to make another rate hike decision. The market was pricing no move in the overnight rate, while highly anticipating this Monday’s Business Outlook Survey (BOS) to see if it would move the needle at all. Basically, no, the needle was not moved. Currently, the probability of a rate hike next week sits at around 21% which was virtually unchanged by the BOS.
The Business Outlook Survey, which polls businesses around Canada, supported that the economy is solid, albeit not spectacular. The overall sentiment of the survey had businesses feeling positive about the economy. The majority of firms said sales grew over the last 12 months with many thinking about expansion. Capacity issues or the inability to meet demand, eased since the last survey from 56% to 47%, which is more akin to an economy working at full capacity. Another area of movement seen by business respondents was their inflation expectations. About 56% of respondents saw inflation at 2% or higher over the next two years, whereas the last report had only 38% of our job-creators seeing inflation above 2%. Major factors cited by the firms were increasing labour costs (minimum wage hikes) and higher commodity prices. The survey which occurred before the recent US and China trade tiff, also had 30% of respondents feeling they could be hurt by United States Policy going forward. Overall, the report reinforced that the economy is doing well and the Bank of Canada can use that in any which way they please.
Real Estate Statistics
In other news, this week had a plethora of real estate numbers come out. CREA home sales numbers came out today, with unit sales up 1.3% month over month nationally. GTA unit sales rose 2.1% month over month after two large previous declines of 24.9% and 7.9%. You could say this could be due to the implementation of B20 rules largely being baked in, but I won’t go there.
Housing starts also came out earlier this week. Interestingly, to probably 1,500 people nationally, the data released by Statscan was delayed by a day. Is that a big deal? I don’t know. Maybe we’ll send this out on Monday one day and see if someone notices. The March housing starts came in at 225,200, which was above consensus of 216,800, but below February’s revised 231,000. Overall, the decline was led by Toronto where multiples fell from 35k to 28.5k. Teranet data that came out also had the Home Price Index number decline 6.6% nationally, year over year.
In some mortgage news, The Canada Bankers Association released arrears stats Tuesday that showed only 0.24% of mortgages were in arrears. If that sounds low, it’s because it is and actually matches the lowest reading for arrears data since 2006. About 11,600 mortgages were in arrears for three or more months, out of 4.8 million mortgages.
Finally, working for Jason, I would be remiss if I didn’t mention that it’s Friday the 13th. No, that’s not in reference to Jason Voorhees of 90’s teen horror fame. It’s the traditional day where motorcyclist enthusiasts head down to Port Dover and celebrate all things motorcycle. Unfortunately, the weather doesn’t look ideal this year which is always a risk with a rolling celebratory date. However, if you are more of a fair weather rider and prefer: comfort, lack of speed and European aesthetics, national Vespa day is annually June 23rd. Sign me up.
Safe riding and have a great weekend!