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Market Commentary - April 22, 2016

Apr 22, 2016

Good Morning.

Headline news in Canada today included Retail Sales and CPI data.  Consumers pulled out the plastic in February and month over month Retail Sales were up 0.4% (vs. -0.8% expected) building on a strong January.  The increase is that much more impressive for the fact that prices were down (mostly gasoline), suggesting that volume in sales were up as much as 1.5%.  Year over year CPI was just above expectations at 1.3%.  Overall, the data should be negative for bond prices, and in fact, yields jumped about 5 basis points across the curve immediately following the news.  5yr GoC bonds are now trading at 0.87%.  That’s up 10 bps from 1 week ago and up 16 bps from 2 weeks ago.   Get those mortgage applications in!  Show me the mortgage!  We’ll make you an offer you can’t refuse!  

The rally in ‘risk assets’ continued this week.  Most notably, CIBC printed a new $1.5 billion 5yr deposit note at GoC+107.  The bonds performed extremely well after pricing and closed at GoC+100.  For context, deposit notes were flirting with spreads of +150 in February, but there’s still room to tighten.  GoC+100 is still high end of the range from 2012-2014. In other bank issuance news RBC issued a $2.0 billion 3yr Covered bond this week at GoC+77 which was at the tight end of guidance.

In the NHA MBS space, MCAP issued a $500 million 5yr pool last Friday at GoC+85.  Not a bad result, but unfortunately, MBS spreads have lagged the rally bank deposit notes.   5yr CMB spreads, however, are about 4bps tighter this week, so we’ve got that going for us.  

Most importantly though, the Raptors won last night, it’s the weekend and golf courses are opening up all over the city, so ”Let’s party like it’s 1999”.  RIP Prince. 

Have a great weekend,

Treasury Guy.
Jason Ellis, Managing Director, Capital Markets