Welcome to another addition of “let’s hope I remember what happened the last two weeks” and “good thing the team left the bar early”, in-depth market commentary. I’m just kidding of course. I have a running word document with every important past market event and we never leave the bar early. In hopes to get you off the computers and back into the Walmart Black Friday queues, I’ll keep the word count to a low of 699.
Since the last commentary, the Canadian yield curve has seesawed quite a bit. The important thing to remember is at one point bond prices went up, and the yields went down. Or the opposite occurred.
Since last commentary, Canada 5s are trading 4 bps lower at 1.63% and 10s are trading 2 bps lower at 1.89%. However, both bonds reached a month high yield on the 14th and quickly reversed as the Canada market played catch up with the USA, as the Canadian fixed income markets were closed the 13th for Remembrance Day.
In general, volumes have been lower this week as the USA celebrates what is probably their biggest holiday of the year, Thanksgiving. What does the USA having a deep fried turkey and football day have to do with our rate markets? Well, last week “International Securities Transactions” was released by Stats Can, which showed foreigners bought +16.81 C$ billion worth of Canadian securities, which is nearing record breaking bond purchase numbers of 121 C$ billion on the year. Suffice to say, Americans “gobble, gobble” the majority of those bonds. On Black Friday, you get cheap jokes too.
It’s probably a good point to catch up on the other major economic news coming out the last couple weeks. Last Friday we had CPI or inflation numbers come out in Canada. Headline CPI slipped to 1.4% year/year and Month/month was up 0.1%. These were both in line with market expectations. The average of the CPI measures puts inflation at 1.6% on the year, which has pretty much wrung out any chance of an interest rate hike in December. The market probability of a hike is now 13% for December and only 33% for January.
This week was relatively light as well, and just like the theme of the day, we received retail sales numbers for September yesterday. These came in a bit soft, coming in at 0.1% m/m while the expected was 1.0%. Clothing, electronics and appliances lead the decline in the number, which coincidentally are probably all on sale today somewhere.
The market will also be keenly watching what happens with future NAFTA negotiations, which are now supposed to occur in January in Montreal. Governor Wilkins, representing the BoC, also reiterated their concern over rising household debt levels. Note: buy on debit, not credit today.
We did have some noteworthy corporate issuances recently. The Canada Housing Trust launched, priced and settled the new 10 year Canada Mortgage Bond. The March 15, 2028 bond was priced at 99.774, with a spread of 45.5 bps over the 10 year GoC bond. This was actually 1 bps wider than when the last 10 year CMB priced, which was the June 2027 and that was +44.5 bps over the 10 year GoC.
There were two real-estate related transactions that may also peak your interest as a borrower. AIMCo Realty issued C$400m of 10.5year unsecured bonds at +108 bps vs the 10 year GOC. Crombie REIT issued $150MM senior unsecured bonds at +240bps over the GOC curve (or 241.6 bps over the 5 year GoC). All important numbers to think about for that commercial mortgage you are getting… but don’t forget about those heavy syndication fees.
Finally, it was brought to my attention by our friendly legal counsel that life isn’t all about consumerism. Especially, today and Cyber Monday. There is apparently a new holiday, called Giving Tuesday, where you give back to charities or the community. That sounds like a great cause. I’m aiming to partake but after a weekend, I typically give all I got to make it into the office on Mondays.
Feel free to send me any good Black Friday videos.
Analyst, Capital Market