Despite the strong tone in equity markets

Posted: Monday, February 4, 2019 - 08:49 EST

Despite the strong tone in equity markets to start the year, as a result of fewer rate hike expectations from central banks, global issues remain in the backdrop.  The U.S. temporarily reopened the government for three weeks in hopes that both democrats and republicans would come to an agreement.  However, contention continues to persist within the divided government particularly around building the border wall.  Currently the U.S. government has enough funding to remain open until February 15, although President Trump indicated on Friday that the ongoing negotiations have been a waste of time.  Regardless, he plans to hold the rescheduled State of the Union address tomorrow evening that is expected to focus on funding for the wall. 

There will be fewer headlines from China this week as the Chinese New Year festivities begin today.  Last week, U.S. and China wrapped up discussions regarding trade tariffs with a pledge to meet again after the Chinese New Year celebrations.  This week, Canada will release its employment data on Friday with consensus estimates for an increase of 5k new jobs.  There will also be a couple of central bank speeches from Bank of Canada deputy governor Lane, Fed Chair Powell and the Bank of England monetary policy announcement.

On Friday, Wells Fargo issued a $1bil 5-year maple bond in Canada that priced at +132bps over the curve.  Even with the larger issuance size, the demand for corporate credit to begin the year led to spreads tightening approximately 4bps in the secondary markets.  Outside of new issues, the tone remained constructive on Friday with a focus on Canadian financials, as well as Hydro One given a more stable credit sentiment after the Avista acquisition was terminated.  Overall, spreads in most sectors continued to tighten another 1-2bps to end the day.

Equity Markets:

  Index Level % Change QTD YTD Q3 2017 Q4 2017 Q1 2018 Q2 2019 Q3 2019 Q4 2019
S&P 500 2,706.53 0.09% 8.13% 8.13% 4.48% 6.64%

-0.76%

3.43% 7.71% -13.52%
TSX

15,506.30

-0.22%

8.50%

8.50%

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

1.86%

0.08% -0.03% -0.03% 1.75% 1.87% 1.97% 2.07% 2.34% 1.89%
Canada 10 Year 1.96% 0.08% -0.01% -0.01% 2.10% 2.05% 2.09% 2.17% 2.43% 1.97%
Canada 30 Year 2.19% 0.05% 0.01% 0.01% 2.47% 2.27% 2.23% 2.21% 2.42% 2.18%
30yr Generic Corporate A rated Spread 1.50% 0.00% 0.00% 0.00% 1.24% 1.21% 1.24% 1.28% 1.30% 1.50%
30yr All-in Corporate A rated Yield

3.69%

0.05% 0.01% 0.01% 3.71% 3.48% 3.47% 3.45% 3.72% 3.68%
US 10 Year 2.69% 0.01% 0.01% 0.03% 2.33% 2.41% 2.74% 2.86% 3.06% 2.69%
CDX IG 67.070 0.209                

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.