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Market commentary - August 26, 2016

Aug 26, 2016

Good Morning Mortgage People.

The markets are quiet as traders wait for US Fed Chair Janet Yellen to speak at a global central banker’s conference in Jackson Hole this morning.  (It’s like COMIC-CON for treasury guys).  Her speech is expected to provide some clarity on monetary policy.  If traders interpret her comments as particularly Hawkish (concerned about the threat of inflation) or Dovish (concerned about weak economic growth) we could see a significant market reaction.  Yields have been relatively range bound recently and today could give the market some direction.  Generally, US economic indicators have been improving, if only moderately, and the risk is that the Fed could get more aggressive with its rate hikes than the market currently has factored in.  It could get bumpy out there today.

The Fed next meets on September 21st and the pre-speech probability of a hike is 28%.  The Bank of Canada next meets on September 7th and the probability of a cut is just 2%.

In new issue news, RioCan (BBB high/BBB-) took advantage of the positive vibes in the credit market and issued a $250 million 4-year deal at a spread of +160 resulting in its lowest ever unsecured coupon of 2.185%.  The issue attracted a record number of investors and was issued 2bps tighter than guidance and was upsized to the maximum amount.  Clearly, investors are looking to add credit.  Swaps, CMB’s and Provincials all ended the week tighter.

In unrelated news, Stephen Harper is leaving politics today to found his own consulting firm.  People familiar with the plans suggest the focus will be on hair prosthetics, synthetics, substitutes and replicas.

Finally, we said goodbye to Gord Downie and the Tragically Hip on the CBC last weekend.  Canadians across the country and around the world tuned out of the Olympics and into the Hip’s farewell concert in their hometown of Kingston.  Treasury Guy isn’t ashamed to admit he shed a tear. 

“First thing we’d climb a tree and maybe then we’d talk
Or sit silently and listen to our thoughts
With illusions of someday casting a golden light
No dress rehearsal, this is our life”

Now get out there and have a great weekend!

Treasury Guy
Jason Ellis, Managing Director, Capital Markets