As expected, the Fed raised rates by 25bps yesterday

Posted: Thursday, June 15, 2017 - 08:35 EDT

As expected, the Fed raised the Fed Funds rate by 25bps yesterday, with the target range at 1%-1.25%.  The statement did address that core inflation continues to run below their 2% target, but Yellen dismissed the recent softness in inflation as driven by transitory factors.  The FOMC also added that it has detailed plans to normalize the balance later this year, given that data is developing as expected.  Yellen also added during the press conference that normalizing the balance sheet could start “relatively soon” if the economy continues to strengthen.  The FOMC will initially set monthly caps for flows of Treasuries and MBS, with any maturities and interest payments above these caps would be reinvested.  The caps will be lifted every three months.  After the Fed announcement, 10 year Treasuries rose marginally by 3bps.  The Bank of England also released it monetary policy statement leaving rates unchanged at 0.25%.  Inflation continues to run higher in the U.K. as a result of the falling pound, however slower consumer spending and benign wage growth continue to be risks.  The BOE’s growth forecasts also depend on a smooth Brexit, which may no longer be the case after the Conservative party lost their majority government.

Although there was no new issuance in the Canadian corporate market yesterday, it was a busier day in corporate credit.  Flows were heavily skewed towards buying, with Shaw continuing to tighten by another 2-4bps.  Higher beta credits, with the exception of energy names from falling oil prices, also traded tighter on the day.  Overall, spreads ended the day 1-2bps tighter, with energy related names approximately 2bps wider.

Equity Markets:

  Index Level % Change QTD YTD Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
S&P 500 2,437.92 -0.10% 3.18% 8.89% 6.45% 0.96% 2.44% 3.85% 3.82% 6.07%
TSX 15,170.13 -1.36% -2.43%

-0.77%

-2.23% 3.75% 5.06% 5.45% 4.53% 2.41%

Rates:

  Today % Change QTD change YTD change Dec 31  2015 March 31 2016 June 30 2016 Sept 30 2016 Dec 31  2016 March 31 2017
Canada 5 Year 1.127% 0.03% 0.01% -0.02% 0.727% 0.621% 0.569% 0.615% 1.150% 1.119%
Canada 10 Year 1.508% 0.02% -0.12% -0.24% 1.390% 1.225% 1.059% 0.990% 1.750% 1.625%
Canada 30 Year 2.047% 0.01% -0.26% -0.30% 2.147% 2.003% 1.714% 1.658% 2.350% 2.302%
30yr Generic Corporate A rated Spread 1.260% 0.00% -0.07% -0.13% 1.610% 1.510% 1.610% 1.530% 1.390% 1.330%
30yr All-in Corporate A rated Yield 3.307% 0.01% -0.33% -0.43% 3.757% 3.513% 3.324% 3.188% 3.740% 3.632%
US 10 Year 2.139% 0.01% -0.25% -0.36% 2.28% 1.77% 1.47% 1.60% 2.50% 2.39%
CDX IG 59.826 1.091                

The information contained herein is intended for advisors for general information only and is compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy. All opinions contained in the commentary and expressed by the portfolio manager are subject to change without notice and are provided in good faith without legal responsibility. All market data is sourced from Bloomberg.