Two year Government of Canada yields opened yesterday at their highest levels in almost a decade

Posted: Thursday, January 11, 2018 - 08:52 EST

Two year Government of Canada yields opened yesterday at their highest levels in almost a decade, based on expectations that the Bank of Canada would raise interest rates by 25bps next week.  However, late in the trading day, news reports were released that an anonymous Canadian official believed President Trump would pull out of NAFTA by the end of January.  The rumour led to the Canadian dollar selling off by approximately 0.75% against the U.S. dollar, while two year yields fell by 9bps from the morning highs.  The speculation also reduced the implied probability that the BOC will increase rates by 25bps, falling to 79% this morning from a high of 87% at the beginning of the week.  The next round of NAFTA negotiations are expected to take place on January 23, in Montreal.

The Canadian corporate credit market continued to be active yesterday, as Choice Property REIT issued two tranches pricing $300mil 4-year bonds at 103bp over curve, and $350mil 7-year bonds at 140bps over the curve.  Both books were oversubscribed, with 80 and 74 buyers, respectively, and credit spreads continuing to tighten another 7-8bps in secondary markets.  Despite the slight volatility generated from the NAFTA news, credit spreads continued to grind tighter to end the day.

Equity Markets:

 

  Index Level % Change QTD YTD Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
S&P 500 2,748.23 -0.11% 2.85% 2.85% 3.85% 3.82% 6.07% 3.09% 4.48% 6.64%
TSX

16,247.95

-0.44% 0.29%

0.29%

5.45% 4.53% 2.41% -1.64% 3.68% 4.44%

Rates:

 

Today

% Change

QTD change

YTD change

Sept 30 2016

Dec 31 2016

Mar 31 2016

June 30 2017

Sept 30  2017

Dec 31  2017

Canada 5 Year

1.983%

-0.03% 0.12% 0.12% 0.615% 1.150% 1.119% 1.393% 1.753% 1.866%
Canada 10 Year 2.189% -0.01% 0.14% 0.14% 0.990% 1.750% 1.625% 1.762% 2.099% 2.045%
Canada 30 Year 2.411% 0.00% 0.15% 0.15% 1.658% 2.350% 2.302% 2.148% 2.472% 2.266%
30yr Generic Corporate A rated Spread 1.210% 0.00% 0.00% 0.00% 1.530% 1.390% 1.330% 1.210% 1.240% 1.210%
30yr All-in Corporate A rated Yield

3.621%

0.00% 0.15% 0.15% 3.188% 3.740% 3.632% 3.358% 3.712% 3.476%
US 10 Year 2.539% -0.02% 0.13% 0.13% 1.60% 2.50% 2.39% 2.31% 2.33% 2.41%
CDX IG 46.848 0.152                

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.