Market commentary

Feb 24, 2017

Good Morning.

Apologies to anyone who missed me these last couple of weeks.  No good excuses really.  Just lazy I suppose.  Hopefully absence makes the reader grow fonder.  Or something like that. 

Economic News
Statistics Canada announced that the consumer price index (“CPI”) was up 2.1% year-over-year in January, much higher than expected (1.6%) and up smartly from the 1.5% increase in December.  Gasoline was a key driver to increased prices.  Ex-gasoline, the core inflation rate was a more modest 1.5%.  Overall it was still a strong report and should support the notion that there is insufficient motive to ease policy at this time.  The next BoC meeting is Wednesday March 1st.  The implied probability of a change in the overnight rate is virtually 0%.  Feel free to sleep in that day.

The Fed next meets on March 15th.  Fed Fund futures show a 36% chance of a hike in March, 60% by May and 75% by June.

Canada Mortgage Bond
Canada Housing Trust (“CHT”) issued $2.5 billion of its new June 2027 ’10-year’ bond last week.  The deal size was a little bigger than expected and the bond has traded a little heavy in the secondary market.  Spreads are out one basis point from the new issue level but it’s nothing to get into a twist about. 

CHT also issued a $3.0 billion re-opening of the March 2022 Floating Rate note at 3-month CDOR+14.3.

Interest Rates
The 5-year GoC benchmark is trading around 1.12% this morning, which is actually down a couple of basis points despite the stronger CPI reading.  Note that the benchmark bond rolled forward from the September 2021’s to the March 2022’s last week.  There are about 5 basis points of ‘curve’ between the two dates. 

The 10-year GoC benchmark is trading around 1.64%.  The benchmark is still the June 2026 bond.  It isn’t expected to roll to June 2027 until the first 10-year auction next quarter, usually toward the end of April.  There are about 12 basis points of ‘curve’ between the two dates so remember, don’t be confused if ’10-year’ GoC rates appear to jump when that happens. 

Oscars
Let’s all root for Kevin O’Connell on Sunday night.  Never heard of him?  He’s nominated for Sound Mixing on “Hacksaw Ridge”.  Why should you root for him?  It’s his 21st nomination and he has NEVER won. 

Finally, The Donald weighed in on the Oscars asking “How many am I nominated for?  I’m the best actor.  I know all the best acting methods.  I use the best words.” 

Have a great weekend, and remember poor Kevin O’Connell,

Treasury Guy
Jason Ellis, Managing Director, Capital Markets