Markets continue to rally

Posted: Tuesday, January 8, 2019 - 08:50 EST

Markets continue to rally and extend the risk-on tone from yesterday.  Global markets have increasing confidence that there will be a positive trade negotiation outcome between China and the U.S., and are largely ignoring the negative impacts from a U.S government shutdown due to ongoing budget negotiations.

Following dovish messages from current and former Fed Chairs on last Friday, along with positive news from China and U.S trade negotiations, U.S. Treasury yields rose 4 bps at the short end, with the yield curve flattening. Similar to U.S Treasuries, the Canadian yield curve shifted higher with a flattening bias ahead of the BoC rate hike announcement on Wednesday.  Markets currently estimate a 0% probability of a hike from the BoC, with a marginal probability of a hike later on in the year.

We saw healthy two-way flows in the Canadian corporate credit markets; spreads were tighter by 2-3 bps across the curve. The Canadian banks continue to look at the covered bond market abroad, with National Bank tapping the EUR covered market overnight. The bank issued a $750 million 5 year covered issue which swapped back to CAD at GoC +77 bps.  This compares with a 5yr Bail-in at GoC+140bps.  We suspect banks are looking at the more attractive covered model to fund their growth which would mean less issuance domestically, and thus be supportive for domestic bank spreads.  

Equity Markets:

  Index Level % Change QTD YTD Q3 2017 Q4 2017 Q1 2018 Q2 2019 Q3 2019 Q4 2019
S&P 500 2,549.69 0.70% 1.74% 1.74% 4.48% 6.64%

-0.76%

3.43% 7.71% -13.52%
TSX

14,504.13

0.54%

1.27%

1.27%

3.68% 4.44%

-4.52%

6.77% -0.56% -10.11%

Rates:

 

Today

% Change

QTD change

YTD change

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Canada 5 Year

1.89%

0.04% 0.00% 0.00% 1.75% 1.87% 1.97% 2.07% 2.34% 1.89%
Canada 10 Year 1.96% 0.03% -0.01% -0.01% 2.10% 2.05% 2.09% 2.17% 2.43% 1.97%
Canada 30 Year 2.15% 0.02% -0.03% -0.03% 2.47% 2.27% 2.23% 2.21% 2.42% 2.18%
30yr Generic Corporate A rated Spread 1.50% 0.00% 0.00% 0.20% 1.24% 1.21% 1.24% 1.28% 1.30% 1.50%
30yr All-in Corporate A rated Yield

3.65%

0.02% -0.03% 0.17% 3.71% 3.48% 3.47% 3.45% 3.72% 3.68%
US 10 Year 2.70% 0.00% 0.02% 0.02% 2.33% 2.41% 2.74% 2.86% 3.06% 2.69%
CDX IG 80.382 -0.998                

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.