I’ll be brief this morning. I’ve got a meeting shortly so there’s no time to waste.
Yields on Canadian bonds continue to be range bound. The 5 year GoC is around 0.61% and has traded between 0.59% and 0.66% for the last month. That’s a pretty tight band considering the range we’ve seen over the last 6 months…0.50% to 0.95%.
In securitization news, Laurentian Bank issued its first syndicated NHA MBS deal (residential mortgages) this week. The $275 million deal was launched at a spread of +89 and priced one tighter at +88 on strong demand. It is now bid at +87 in the secondary market. By comparison, Merrill Lynch Canada and TD Securities issued pools last month at +85 and +86 respectively. Spreads haven’t really widened though…the Laurentian deal likely came with a modest new issuer concession on pricing.
Since we’re talking about securitization, a few people were asking me about the article in the Globe and Mail yesterday titled “CMHC eyes $3 billion debt sale in Brexit’s wake”. This is nothing to get excited about. While the article seems to imply something more extraordinary, the bond issues it refers to are just the normal course quarterly 10yr and Floating Rate Note CMB. Unfortunately, this isn’t new liquidity. Foreign investors have been buying CMB for a long time. Short version: Move along, nothing to see here. I can confirm, however, that the 10 year CMB is currently trading about 5bps tighter to GoC’s than when it was first issued in May. But not because of Brexit.
In the broader world of credit spreads, the CDS Investment Grade index is trading around its 6-month low of 71. That’s compared an eye watering 120 back in February and 90 as recently as June. The index is composed of 125 equally weighted credit default swaps in investment grade entities. In case you’re not certain…lower is better.
In non-fixed income news, did you notice that yesterday all three major US stock indices closed at all-time highs? Is it just me or does that feel wrong? The last time this happened was in 1999…the peak of the tech bubble. Just sayin’.
OK…I’m running out of time and I still don’t have anything ‘pithy’ to say. There hasn’t been any news in the ketchup or macaroni dinner industries lately. Maybe it’s just too hot to be clever. Instead I’ll share a piece of wisdom that comes to mind now that the Blue Jays are in first place.
“Sometimes you win. Sometimes you lose. Sometimes it rains.” Think about that for a while.
Stay Cool out there,
Jason Ellis, Managing Director, Capital Markets