Last night's postponed State of the Union address...

Posted: Wednesday, February 6, 2019 - 09:17 EST

Last night’s postponed State of the Union address from President Trump wrapped up with very few new ideas.  The President did call for more bipartisan discussion between the Democrats and Republicans including rebuilding infrastructure across the U.S.  Given the contentious debate over the recent government shutdown, building the border wall remained a large part of the infrastructure plan.  The speech also celebrated the U.S. as an energy independent nation that is now a net exporter of oil and natural gas. 

This morning, Bank of Canada deputy governor Lane is speaking noting that the underperformance of the Canadian economy, relative to the U.S., has put downward pressure on the Canadian dollar.  This weakness is expected to be temporary although the lower Canadian dollar should be beneficial for the economy.  The recent trade disputes continue to hold back investment in Canada, while the country is also facing lower oil prices and softer housing investment.  Lane’s comments echo those of Deputy Governor Wilkens last week that also noted concern for the rising level of debt.  The rather dovish comments from the Bank of Canada have now pushed back rate hike expectations, with only a 21% probability that the BOC will hike rates by 25bps in July.

The new issue Canadian corporate credit market was active yesterday with Canadian National Railway issuing two tranches of bonds.  The company priced $350mil 10-year bonds that priced at +109bps over the curve, and $450mil 30-year bonds at +145bps over the curve.  With spreads continuing to tighten since the beginning of the year, the deal did not offer a large new issue concession and as a result only tightened by 1-2bps in secondary trading.  The tone in the corporate credit market remained constructive yesterday as positive earnings reports continued to support both equity and fixed income markets.  To end the day, credit spreads tightened anywhere from 2-5bps across the curve.

Equity Markets:

  Index Level % Change QTD YTD Q3 2017 Q4 2017 Q1 2018 Q2 2019 Q3 2019 Q4 2019
S&P 500 2,737.70 0.47% 9.37% 9.37% 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


-0.04% -0.06% -0.06% 1.75% 1.87% 1.97% 2.07% 2.34% 1.89%
Canada 10 Year 1.92% -0.05% -0.05% -0.05% 2.10% 2.05% 2.09% 2.17% 2.43% 1.97%
Canada 30 Year 2.16% -0.03% -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% 0.00% 1.24% 1.21% 1.24% 1.28% 1.30% 1.50%
30yr All-in Corporate A rated Yield


-0.03% -0.02% -0.02% 3.71% 3.48% 3.47% 3.45% 3.72% 3.68%
US 10 Year 2.69% -0.01% 0.01% 0.01% 2.33% 2.41% 2.74% 2.86% 3.06% 2.69%
CDX IG 64.606 0.403                

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.