The risk-off sentiment persists this morning...

Posted: Tuesday, October 9, 2018 - 09:12 EDT

The risk-off sentiment persists this morning with European equity markets and North American futures all opening in the negative territory.  Investors are looking at the back up in U.S. Treasury yields negatively compared with equities.  The 10-year U.S. Treasury yield reached as high as 3.25% this morning which represents the highest levels since 2011.  Canadian government yields also moved higher on Friday with the 10yr Canadian bond going into the Thanksgiving long weekend just below 2.60%. 

This morning, the IMF cut its global growth forecast indicating that global trade disruptions and emerging market anxiety could lead to decelerating growth prospects.  The organization believes that the world economy is plateauing with projected growth this year and next revised down from 3.9% to 3.7%.  The outlook change relates to increasing downside risks that have risen over the past three months and an accelerated departure of capital from emerging markets as a result of the impending U.S. and China trade war.  If the trade war continues, growth for 2020 could also be revised lower.

The Canadian corporate credit market was moderately active on Friday considering the shortened trading day, as a result of the long weekend.  The tone was skewed towards a negative sentiment on Friday which led to profit taking particularly in deposit notes.  Bank deposit note spreads have grinded tighter following the release of bail-in senior bonds.  The primary issuance market in Canada has been quiet over the past two weeks although issuers continue to look to issue opportunistically.  Enercare/Brookfield Infrastructure wrapped up its roadshow late last week, while the Clover P3 project may look to price sometime next week.  As a result of the weaker tone, spreads ended Friday approximately 1bps wider.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,884.43 -0.04% -0.98% 9.47% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,946.17

-0.38%

-0.74%

0.61%

-1.64% 3.68% 4.44% -4.52% 6.77% -0.56%

Rates:

 

Today

% Change

QTD change

YTD change

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Canada 5 Year

2.48%

-0.01% 0.14% 0.61% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.60% 0.00% 0.17% 0.56% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.59% 0.01% 0.17% 0.33% 2.15% 2.47% 2.27% 2.23% 2.21% 2.42%
30yr Generic Corporate A rated Spread 1.30% 0.02% 0.00% 0.02% 1.21% 1.24% 1.21% 1.24% 1.28% 1.30%
30yr All-in Corporate A rated Yield

3.89%

0.03% 0.17% 0.35% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.25% 0.02% 0.19% 0.84% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 62.338 0.941                

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.