What were May’s employment numbers? Find out this and more here.

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

Greetings Canadian mortgage market participants,

I guess it’s been a while since my last post.  Young Andrew has done a fine job in the meantime and according to our marketing department, his commentaries have been well received.  Despite this, our website statistics have revealed some interesting facts.  Among them, apparently our readers have a fever…and the only prescription is more Treasury Guy!     

Bank of Canada

The BoC’s semi-annual Financial Stability Review (“FSR”) was released yesterday and continued to emphasize household debt and the housing market as primary sources of risk and vulnerability.  Despite this, according to a global ranking of real estate price growth released by the Knight Frank consulting group, Canada is sinking fast amid the new regulatory measures aimed at cooling markets.  Canada held the number 15 spot last quarter, down from number 10 in the previous quarter.  It’s time to stop talking about mortgages and time start talking about auto loans and sub-prime snowmobile lending.  According to the FSR, as a result of longer term auto loans, car values are depreciating faster than loan principal.  One third of borrowers are trading in cars with negative equity.  In the meantime, the BoC admits “restrictions on mortgage portfolio insurance are restricting consumer’s financial flexibility, pushing them increasingly toward home equity lines of credit, second mortgages, credit cards and other costlier forms of consumer debt”.  Out of the frying pan and into the fire…but what do I know? 

Since we’re talking about the BoC, I’ll remind you that on May 30th they left the overnight target rate unchanged at 1.25%.  The next meeting is on July 11th and the implied probability of a 25 basis point hike stands at 80%.


Data released this morning showed that Canada lost 7,500 jobs in May compared to forecasts for 23,500 new jobs.  A surprising decline in what has been a robust employment market.  The job losses aren’t anything to get too fussed about.  It’s a small concession against the 238,000 jobs created over the last year.  More importantly, despite the lost jobs, wages rose 3.9% in May compared to a year ago.  Bond yields are 1-2 basis points higher after the news.  The employment report shouldn’t change the market’s expectations for the BoC meeting next month.

Interest Rates and Spreads

After a volatile couple of weeks, bond yields didn’t do much of anything this week.  We’re finishing the week right where we started it without much flip-floppery in between.  5’s are trading around 2.14% and 10’s are trading around 2.30%.  In case you were wondering, yes, 16 bps between the 5 and 10 year bond is a pretty flat curve.  The average spread over the last 5 years has been 55 bps.  Back in July 2015, the spread touched 90 basis points and has been generally flattening since then. 

The IG30 is a US credit default swap index that measures investment grade credit spreads.  It currently stands at 67, out 3 on the week.  For context, we are close to the 6-month high.  The low was set back in January at 45. For clarity, lower is better…unless you’re long credit default swaps.  Never mind.  More importantly, domestic financials are mixed to unchanged.  In other words, there’s nothing to worry about…keep calm and carry on. 

Ontario Provincial Election

Frustrated by an abundance of controversy and a lack of faith in the competing parties, I threw my vote to the Rhinoceros Party.  Despite my attempt to disrupt the outcome, the PCs managed a majority, the NDP will form the opposition, the Liberals lost official party status, and the Green Party won a seat.  Cats and Dogs may as well be sleeping together.  Oh well.  I was taught that politics and religion are not polite topics for conversation, so I’ll just let the facts speak for themselves.  I’m moving to Saskatchewan.

Other stuff

Alex “the Great 8” Ovechkin finally took home the Stanley Cup last night.  Good on him, but it would have been quite the story if Las Vegas had been able to close out their fairy tale season by winning it all.

Finally, the Senate has approved the landmark legislation to lift Canada’s 95-year old prohibition on marijuana…possibly while high.   Reports showed that convenience stores within 10 blocks of parliament were completely sold out of Doritos.  Don’t rush out and buy your bong and home hydroponics kit yet though.  There are still some amendments to deal with. 

On that note…it’s the weekend.  Go get your freak on!

Treasury Guy.