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What was the key takeaway of the ECB meeting? Find out here.

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

Greetings.

April 25th was “DNA Day”.  The mere fact that I mention this will probably result in another round of beatings by the commercial mortgage thugs…but I can’t really blame them.  It turns out humans and cabbages share 40-50% of common DNA.  Unfortunately, I think the commercial mortgage team leans a little more toward the cabbage end of the DNA spectrum. 

Anyway…let’s see what happened this week.

Quick Rates Update

5 year GoC bonds are trading around 2.13% this morning.  That compares to 2.16% 1 week ago.  The 6-month high was 2.18% on February 1st and the 6-month low was 1.63% on November 28th 2017.

10 year GoC bonds are trading around 2.32% this morning.  That compares to 2.35% 1 week ago.  The 6-month high was 2.40% on February 15th and the 6-month low was 1.87% on December 15th 2017.

In the mysterious world of ‘posted’ residential mortgage rates, TD lifted its rate by 45 basis points to 5.59%.  The other banks are still mostly at 5.19% but I imagine they’ll move up soon enough. More significantly though, ‘actual’ mortgage rates have not increased yet, but the spread between prevailing residential mortgage rates and any reasonable benchmark are as narrow as this Treasury Guy can remember.  I’d expect to see fixed mortgage rates moving higher very soon…all else being equal.

Economic Releases

It was a really light calendar this week in Canada and I have nothing material to report domestically.  Of note in the US, however, were the Initial Jobless Claims and GDP reports.  Claims for unemployment benefits fell to its lowest level since 1969 this week.  With an unemployment rate of 4.1%, the US labour market is considered to be at full employment.  US GDP, released this morning, showed the economy grew modestly in the first quarter.  Annualized quarter over quarter growth of 2.3% exceeded the 2.0% expected but still lagged the 2.9% posted in the 4th quarter last year. 

Central Bank Updates

The European Central Bank (“ECB”) held rates unchanged at their policy meeting on Thursday amid signs the euro zone’s growth outlook may have softened.  As important as the ECB’s rates are, clues about when the bank may end its stimulus program, under which it purchases 30 billion euros of bonds per month.  No changes to that program were announced.  The ECB’s main administered rate for financing operations remains at ZERO percent.

The US Federal Open Market Committee (“FOMC”) meets on Tuesday next week (May 2nd).  Expectations are for no change.  The Fed’s administered rate is managed within a range and is currently set at 1.50%-1.75%.

The next Bank of Canada meeting isn’t until May 30th.  Implied probability of a 25 basis point hike based on Overnight Index Swaps (“OIS”) is about 37%.  The current BoC overnight rate is 1.25% following the last hike on January 17th 2018.

New Issue Activity

Chartwell Retirement Residences issued a $150 million 7-year senior unsecured debenture rated BBB-low at GoC +190 basis points.  The deal was well over-subscribed and pricing came at the narrow end of guidance.

RBC issued a $2 billion 5-year deposit note at GoC +77.  The transaction capitalizes on strong demand for deposit notes ahead of the new ‘bail-in’ regulations.  For clarity, deposit notes issued prior to September 23rd will maintain a senior position relative to future ‘bail-inable’ debt.  As opposed to a bailout, where government provides financial assistance to a non-viable bank, a bail-in will automatically convert certain debt securities, like deposit notes, into regulatory capital to stabilize the financial institution.

For spread context, the 5 year RBC deposit note at +77 compares to 5 year CMB at +31, and 5 year Ontario’s at +47. 

In Conclusion

The landlord say your rent is late
He may have to litigate
Don’t worry, be happy

Ain’t got no cash, ain’t got no style
Ain’t got no gal to make you smile
Don’t worry, be happy

Cause when you worry your face will frown
And that will bring everybody down
So don’t worry, be happy!

Have a great weekend,

Treasury Guy