The risk-off tone continued...

Posted: Thursday, October 11, 2018 - 09:17 EDT

The risk-off tone continued in the Canadian corporate credit market yesterday following the steep sell-off in equity markets.  The sentiment this morning remains negative with European equity and North American futures all pointing to declines to start.  The Canadian dollar has also sold off against the U.S. dollar in the recent flight to quality.  Overall, flows were skewed towards net selling with the recent RBC bail-in bonds widening by a couple of basis points.  The remainder of secondary market spreads also ended the day approximately 3-5bps wider.

U.S. headline inflation for September increased by 0.1% in the month, which missed expectations for a 0.2% increase.  On a year over year basis, CPI is now running at 2.3%.  Inflation declined in the month as a result of falling costs for used vehicles sales, while energy cost and housing utilities also declined.  Prices for used automobiles dropped by the largest margin in 15 years.  Core CPI, excluding food and energy, increased by 0.1% similar to headline inflation.  This month showed a moderation in both core and CPI increases, although markets are not pricing in a large probability that the Fed will increase rates at the next November meeting.  Despite inflation tempering, real wages on an hourly basis increased by 0.5% in September, which was a pleasant increase from the 0.2% rise in the prior month.  President Trump commented yesterday on the current path of the FOMC’s interest rate hikes, noting that the central bank “has gone crazy”.  However, finance ministers and central bankers around the world have come to the defense of the Fed at the current IMF meetings.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,785.68 -3.29% -4.35% 5.76% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,517.40

-2.12%

-3.36%

-2.04%

-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

2.42%

-0.04% 0.07% 0.55% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.54% -0.03% 0.11% 0.49% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.54% -0.02% 0.12% 0.27% 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

3.84%

0.00% 0.12% 0.29% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.17% 0.01% 0.11% 0.77% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 64.677 -1.065                

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.