Market commentary

Feb 3, 2017

Good Morning.

Economic News
The headline data today was US Nonfarm payrolls and wages.  Payrolls increased 227,000 compared to an expected 180,000.  Average hourly earnings grew 2.5% from January 2016.  While the data would indicate the job market is still enjoying steady growth, the increase in earnings was the slowest since August.  The modest growth in wages may give the Fed room to keeps rates lower for longer.  Bonds rallied (prices up, yields down) as much as 5-6 basis points following the news.

Rates
The current 5 year benchmark GoC bonds maturing in September 2021 are yielding 1.08%.  They started the week around 1.14%.  The benchmark will move to the March 2022 bond soon.  It’s trading around 1.15%.

The current 10 year benchmark GoC bonds maturing in June 2026 are yielding 1.73%.  They started the week around 1.78%.  The benchmark will move the to the June 2027 bond soon.  It’s trading around 1.84%.

In central bank news, the Federal Open Market Committee (the “FED”) left rates unchanged on Wednesday.  More significantly, the official statement that followed proved to be more ‘dovish’ than anticipated which helped lead rates lower this week.  Remember, a ‘dovish’ central bank is in favour of maintaining low interest rates in an effort to stimulate an economy.  They are less worried about inflation.  The softer wage growth in today’s payroll report supports the Fed’s comments on Wednesday.  Bottom line: Soft economic data and/or ‘dovish’ central bank comments lead to higher bond prices and lower bond yields.  Savvy?

Regulatory News
The Donald will sign (another) executive order today that will remove a fiduciary rule that was meant to protect retirees, but Trump says limits investor options.  He’s right.  My grandmother should be able to buy Swaptions, CDO’s and magic beans if she chooses too!  The move is first step in the dismantling of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The act was signed into law by President Obama in 2010.  It brought significant changes to financial regulation following the events of the liquidity crisis.  Trump has pledged to “do a big number” on Dodd-Frank. 

Real Estate Finance
Slate Asset Management is launching the Slate Canadian Real Estate Opportunities fund based on its recent acquisition of a portfolio of Calgary office buildings from Dream Office REIT. 

If Calgary office buildings are a little too “opportunistic” for your taste, Canada Housing Trust will be issuing this month.  Expectation is for a new 10 year CMB maturing in June 2027 and a re-opening of the 5 year Floating Rate Note (FRN) maturing in March 2022.  We expect the deals to be launched the week of February 13th with pricing on February 15th.

Other Stuff
It was Groundhog Day yesterday.  In a 131 year-old tradition Punxsutawney Phil emerged from his burrow at Gobblers Knob, Pennsylvania and saw his shadow.  Sadly, according to legend that means six more weeks of winter.  Witchcraft!  Treasury Guy doesn’t subscribe to such pagan rituals!  As Bill Murray said in Groundhog Day the movie, “This is pitiful.  A thousand people freezing their butts off waiting to worship a rat.”

Have a great weekend,

Treasury Guy
Jason Ellis, Managing Director, Capital Markets