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Market Commentary – January 29, 2016

Jan 29, 2016

Good Morning.

I’m writing to you on Thursday evening, so my comments won’t capture the GDP data being released here and in the US at 8:30am on Friday…so keep an eye on that if you’re at all interested in economics.

The big news or at least the largely anticipated news this week was the decision by the Fed to leave its benchmark interest rate unchanged.  The related comments were ‘dovish’ in nature, pushing expectations for a hike further out the curve.  The next meeting is scheduled for March 16th and the implied probability of a 25bp hike (as given by Fed Fund Futures) is just 14%.

In rate action this week, 5 and 10yr yields are down about 7bps to 0.68% and 1.24% respectively.  CMB spreads are relatively unchanged.

With February just around the corner, we are anticipating a re-opening of the current December 2025 CMB bond with a deal likely to be launched the week of February 16th.  Indicative spreads are about 6.5bps wider than November when the December 2025 bond was first issued.  In fact, CMB spreads remain near the wide end of their two year trading range, but despite this, they have outperformed other credits (like provincial bonds) throughout the most recent global volatility.

In other news, Scotiabank was downgraded by Moody’s earlier in the week.  Moody’s cited Scotia’s growth in credit card lending and auto finance.  So, basically, they were downgraded for doing stuff that banks do. 

Sorry.  That’s all I’ve got today.  Must be a lack of Vitamin D or something, but I’m off to Mexico this weekend, so that should sort me out.

Adios Amigos,

Treasury Guy

Jason Ellis
Managing Director, Capital Markets