The BoC left the overnight rate unchanged at 1.75%

Posted: Thursday, January 10, 2019 - 09:13 EST

The Bank of Canada released its monetary policy decision yesterday that left the overnight rate unchanged at 1.75%.  The statement continued to reference the U.S. and China trade conflict that will continue to weigh on global growth.  Given the steep decline and recovery in oil prices, especially related to Western Canadian Select, oil in Canada will still be subject to pipeline constraints and will remain a headwind for GDP growth going forward.  With strong job growth and the unemployment rate at a 40-year low, the Canadian economy is expected to remain close to potential despite the BOC’s downward revision for GDP in 2019 by 0.4% to 1.7%.  The new CUSMA deal should bring stability to business investment while consumer spending may be muted as higher interest rates will reduce household disposable income.  CPI will dip below the 2% target mainly due to lower gasoline prices, which will give the central bank further reason to pause from its current rate hike path.  The Fed also released minutes from its December meeting yesterday revealing that the recent volatility in markets were discussed even though the vote was unanimous to raise rates.  Members indicated that the central bank could be more patient around further rate hikes with an heightened emphasis on data-dependency.  The minutes had very little reference to the balance sheet unwind even though Fed Chair Powell indicated earlier this year that the Fed would look to alter the pace of balance sheet reduction if warranted.

The tone in the Canadian corporate credit market remained skewed towards better buying.  As a result, John Deere Financial was the first fixed-rate new issue of 2019, pricing a 3-year bond at +107bps over the curve.  There was very little selling against the new deal resulting from the recent lack of new issuance.  Corporate credit buying was broad based across all sectors and tenures.  With the better tone yesterday, spreads saw significant tightening, approximately 2-5bps tighter depending on the name.  However, global trade, Brexit and the U.S. government shutdown still remain in the background.

Equity Markets:

  Index Level % Change QTD YTD Q3 2017 Q4 2017 Q1 2018 Q2 2019 Q3 2019 Q4 2019
S&P 500 2,584.96 0.41% 3.18% 3.18% 4.48% 6.64%


3.43% 7.71% -13.52%





3.68% 4.44%


6.77% -0.56% -10.11%




% Change

QTD change

YTD change

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Canada 5 Year


0.00% 0.01% 0.01% 1.75% 1.87% 1.97% 2.07% 2.34% 1.89%
Canada 10 Year 1.96% -0.01% -0.01% -0.01% 2.10% 2.05% 2.09% 2.17% 2.43% 1.97%
Canada 30 Year 2.16% -0.01% -0.02% -0.02% 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


-0.01% -0.02% 0.18% 3.71% 3.48% 3.47% 3.45% 3.72% 3.68%
US 10 Year 2.70% -0.01% 0.01% 0.01% 2.33% 2.41% 2.74% 2.86% 3.06% 2.69%
CDX IG 78.979 -0.129                

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.