What is influencing interest rates? Find out here.

  • Jason Ellis, Senior Vice President and Managing Director, Capital Markets

Good Morning mortgage enthusiasts,

Before we get into the numbers, here are few calendar related notes:

Today is National Walk to Work Day.  I didn’t.  I’m betting you didn’t either.  Walking is for suckers.  Of course, life moves pretty fast.  If you don’t stop and look around once in a while, you could miss it.

Tomorrow is the last day of Passover.  I assume matzoh goes on sale on Sunday, so…you know cheap matzoh.

This week is the Masters golf tournament.  In case you missed it, defending champion Sergio Garcia put four balls in the water on his way to carding an octuple bogey 13 yesterday.  When asked about the debacle, all Sergio said was “Gunga galunga…gunga, gunga-galunga” which is an old Tibetan expression of peaceful dismay used after making an errant golf shot. 

April is Mathematics and Statistics awareness month.  Here’s a statistic.  The probability of Treasury Guy getting beat up by the commercial underwriters went up by 67% after mentioning Math and Statistics awareness month. 

Raw Interest Rate Data

2yr GoC Yield:    1.82% (6 month high of 1.88%; 6 month low of 1.40%)

5yr GoC Yield:    2.03% (6 month high of 2.16%; 6 month low of 1.60%)

10yr GoC Yield:  2.18% (6 month high of 2.38%; 6 month low of 1.84%)

Stuff influencing Interest Rates

Yesterday, PM Justin Trudeau suggested that NAFTA talks have picked up momentum.  “We are having a very productive moment” he said.  Optimism that a NAFTA deal is within reach hasn’t filtered into expectations for a Bank of Canada interest rate hike yet.  Markets are currently placing only a 20%-25% chance of a hike at the central bank policy meeting on April 18th.  That’s down from as high as 55-60% six weeks ago.  Today’s net change in employment data came in a little stronger than expected at +32,300 vs. +20.000 Not enough to materially move rates or change BoC rate hike expectations though.   Hourly earnings ticked up 3.1% year over year and the jobless rate remained at 5.8%, which is a 40+ year low.

Down south, the change in non-farm payrolls came in on the softer side of expectations at +103,000 vs. +185,000.  Hourly earnings increased at 2.7% from a year earlier, matching projection, and the jobless rate remained unchanged at 4.1%.

New Issues and Credit Spreads

Ontario and Quebec both came to the market this week with 10yr bonds and Ontario was taught a tough lesson.  Quebec priced its issue 8bps tighter.  Ontario issued at GoC +73.5 bps and Quebec issued at GoC +65.5.  Vive le Quebec moins cher!  The provinces are rated the same but investors have traditionally demanded a little extra when lending to Quebec due to its higher debt load relative to the size of its economy.  Investors have also cited an intense dislike for the Montreal Canadiens.  Of course, Ontario’s planned budget deficits for the next six years may be a contributing factor too.  In either case, those spreads are about 15 bps wider than either province could issue at back in January.

Canada Mortgage Bond spreads have also been drifting wider since January.  CMB’s have gone from +26 to +32 but have outperformed 5 year senior deposit notes which have gone from +65 to +80 over the same time. 

Closing thoughts

This ‘national walk to work day’ nonsense has me thinking.  I might try out this new fad called jogging this weekend.  I believe it’s jogging…or yogging; it might be a soft ‘j’.  I’m not sure but apparently you just run for an extended period of time.  It’s supposed to be wild.

Whatever you’re doing, remember, when it comes to the weekend, the question isn’t “what are you going to do,” the question is “what aren’t you going to do?”

Have a great weekend,

Treasury Guy.