The U.S. Senate was able to pass the tax reform bill

Posted: Monday, December 4, 2017 - 08:25 EST

Over the weekend, the U.S. Senate was able to pass the tax reform bill which will be the largest overhaul in three decades.  However, the committee is still required to amalgamate the House and Senate versions of the bill that can be passed.  The similarities from the previously proposed House bill include a reduction in corporate tax rates from 35% to 20% and limit on net interest deductibility for corporations to 30% of income. The bill will result in approximately $1.4 trillion in net tax cuts over the decade.  Changes to the bill include delaying the corporate tax rate reduction until 2019, mortgage interest deductibility will be left at the previous $1 million mark, and the personal income tax brackets largely remains the same with the exception of the top rate.  As a result of the news, equity markets in Europe are up over 1%, U.S. equity futures are also opening higher, while U.S. Treasuries are approximately 3bps higher across the curve.

Friday saw some volatility in Canadian government yields.  Strong employment data led to a selloff in rates. CIBC decided to follow RBC’s lead after Q4 earnings and issued $1.25bil 5-year deposits notes at +74bps over the curve on Friday. Spreads closed the day approximately 1bps wider as a result of new issue supply.

Equity Markets:

  Index Level % Change QTD YTD Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
S&P 500 2,642.22 -0.20% 5.26% 20.25% 2.44% 3.85% 3.82% 6.07% 3.09% 4.48%
TSX

16,038.97

-0.18% 3.03%

7.62%

5.06% 5.45% 4.53% 2.41% -1.64% 3.68%

Rates:

 

Today

% Change

QTD change

YTD change

June 30  2016

Sept 30 2016

Dec 31 2016

Mar 31 2016

June 30 2017

Sept 30  2017

Canada 5 Year

1.711%

0.08% -0.04% 0.60% 0.569% 0.615% 1.150% 1.119% 1.393% 1.753%
Canada 10 Year 1.938% 0.05% -0.16% 0.22% 1.059% 0.990% 1.750% 1.625% 1.762% 2.099%
Canada 30 Year 2.233% 0.00% -0.24% -0.08% 1.714% 1.658% 2.350% 2.302% 2.148% 2.472%
30yr Generic Corporate A rated Spread 1.240% 0.00% 0.00% -0.09% 1.610% 1.530% 1.390% 1.330% 1.210% 1.240%
30yr All-in Corporate A rated Yield

3.473%

0.00% -0.24% -0.17% 3.324% 3.188% 3.740% 3.632% 3.358% 3.712%
US 10 Year 2.392% 0.03% 0.06% -0.05% 1.47% 1.60% 2.50% 2.39% 2.31% 2.33%
CDX IG 51.116 -2.430                

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.