Category: Market Action

TXPR closed at 684.70, down 0.76% on the day. Volume today was 1.18-million, fourth highest of the past 21 trading days.

CPD closed at 13.59, down 1.16% on the day. Volume was 84,800 (! … consolidated volume was 318,440), above the median of the past 21 trading days.

ZPR closed at 12.36, down 0.40% on the day. Volume was 137,150 (consolidated = 415,790), above the median of the past 21 trading days.

Five-year Canada yields were up 8bp to 3.21%.

Not the greatest of all days elsewhere, either:

The S&P 500 slumped 1.7% for its worst day since January and is back on track for a fifth straight losing week. That stretches back to before the Iran war began, and it would be the longest such losing streak in nearly four years.

The Dow Jones Industrial Average dropped 469 points, or 1%, and the Nasdaq composite sank 2.4% to fall more than 10% below its all-time high set early this year. That’s a steep enough drop to official be in a correction.

Similar to the U.S. indexes, the S&P/TSX Composite closed at its lows for the session, losing 1.53%.
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On Thursday, the fighting continued, and thousands more U.S. troops neared the region. Iran, meanwhile, tightened its grip on the crucial Strait of Hormuz. It may be creating something like a “toll booth” for tankers to get past the narrow waterway, which typically sees a fifth of the world’s oil exit the Persian Gulf through it to customers worldwide.
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The price for a barrel of Brent crude oil climbed 4.8% to settle at US$101.89 as hopes dimmed for a potential return to normal for the strait. That’s up from roughly US$70 before the war began. Benchmark U.S. crude rose US4.6% to $94.48 per barrel.
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The yield on the 10-year Treasury jumped as high as 4.43% Thursday from 4.33% late Wednesday and from just 3.97% before the war started. That’s a significant leap for the bond market. Canadian yields rose by a similar degree on Thursday, with the 10-year up 7 basis points by late afternoon.
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The Toronto Stock Exchange’s S&P/TSX composite index ended down 495.08 points at 31,887.52, giving back some of this ​week’s gains. For the month of ‌March, the index was on track to lose 7.1%.
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In stock markets abroad, Germany’s DAX lost 1.5%, Hong Kong’s Hang Seng sank 1.9% and South Korea’s Kospi dropped 3.2%. Japan’s Nikkei 225 had one of the world’s milder losses, at 0.3%.

I love the pomposity of “steep enough drop to official (sic) be in a correction”. Really, huh? Official according to which officials? Can I be fined if I just say it’s down a bunch? Jailed, maybe?

PerpetualDiscounts now yield 5.75%, equivalent to 7.50% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.03% on 2026-3-25. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 245bp from the 240bp reported March 18.

Bonds got clobbered today:

Short-term bond yields were sharply higher in both the U.S. and Canada. Money markets are now fully pricing in a quarter-point interest rate hike by the Bank of Canada by this July’s policy meeting. Almost three quarter-point rate hikes are priced in by the end of this year. Canada’s 2-year bond yield, sensitive to central bank policy moves, was up 23 basis points by late afternoon to its highest level in more than a year. For the Fed, interest-rate futures were pricing ⁠around a ​25% chance of a rate hike by December.
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Government bond yields in the U.S. and Europe spiked on Friday as investor concern intensified over the inflationary impact of the war-driven global energy shock, with expectations the pressure will not ease anytime soon.

In the U.S., 10-year rates rose to their highest since last summer. Investors, long focused on the prospect of further interest-rate cuts this year, shifted to pricing in a moderate chance that the Fed will be forced to hike later this year.

British 10-year government borrowing costs also soared, rising to their highest level since the global financial crisis. The 10-year gilt yield pushed above 5 per cent, widely seen as a pressure point reflecting Britain’s economic vulnerability to rising energy costs.

German 10-year government bond yields hit their highest since the euro zone crisis in 2011. The 10-year yield , a benchmark for European government borrowing costs, hit a high of 3.025 per cent and was last up 7 basis points (bps) on the day. Yields rise as prices fall and vice versa.

ECB policymakers warned of growing inflation risks on Friday, but stopped short of calling for tighter policy, even as a host of brokerages started penciling in rate hikes from as soon as April.
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About 11am – JH Canada’s five-year bond yield is up about 12 basis points to 3.196% and at its highest since June 2024.

It started this week at about 3.062 per cent.

If this surge in yields sticks for long, it will undoubtedly result in upward pressure on fixed mortgages rates. It’s also likely to result in higher GIC payouts.

Long Canada yields were up 9bp on the day, while five-years were up an incredible 18bp to 3.23%.

There has been a 10% net conversion of TA.PR.E into TA.PR.D. I have updated the linked post regarding the reset rate with this information.

DBRS has released a commentary titled Private Credit Default Momentum Increasingly Tied to Distressed Debt Exchanges and I have tucked away a copy HERE:

Key highlights from this commentary include:
— Distressed exchange transactions now dominate default activity, primarily driven by increased use of interest deferrals as a late-stage tactic among borrowers after less severe capital support measures were attempted and were unsuccessful.
— We attribute the rise in distressed exchange situations to borrowers still struggling with declining revenue, weak operating margins, and a significant debt burden.
— We expect the recent accelerated pace of default to continue into 2026, following a 78% year-over-year increase of default events in 2025. We expect a high proportion of borrowers currently rated in the CCC through C categories to weaken further, particularly those that have relied on waivers or amendments that loosened covenant thresholds or required external capital support.

Real housing prices have been flat for about nine years:

In real, or inflation-adjusted terms, the benchmark national home price has fallen by close to 30 per cent from its peak, bringing home prices back to the inflation-adjusted level of nine years ago.
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As is often said, there is no national housing market, and the differences that exist between some Canadian markets are even more extreme in real terms. Prices in Quebec in February, for instance, hit an all-time high.

Meanwhile, in Alberta the inflation-adjusted benchmark price sat roughly where it was a decade earlier, having generally flatlined for most of that time. The typical home in Greater Vancouver has also endured a lost decade after accounting for the corrosive effect of inflation on prices.

Ontario home prices have suffered some of the steepest real declines from the 2022 peak, however, even if prices haven’t touched decade-ago lows, with the typical home in Greater Toronto shedding more than one-third of its value since the peak.

The BoC stood pat today:

The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

The war in the Middle East has increased volatility in global energy prices and financial markets, and heightened the risks to the global economy. The breadth and duration of the conflict, and hence its economic impacts, are highly uncertain.

Prior to the war, the global economy was on pace to grow at around 3%, as expected in the January Monetary Policy Report (MPR). Economic growth in the United States has moderated but remains solid, driven by consumption and strong AI-related investment. US inflation remains above target and has evolved largely as expected. In the euro area, domestic demand is supporting growth while exports have contracted. China’s economy continues to be boosted by strength in exports, but domestic demand remains weak.

Since the outbreak of the conflict in the Middle East, global oil and natural gas prices have risen sharply, and this will boost global inflation in the near-term. In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities, such as fertilizer. Financial conditions have tightened from accommodative levels. Global bond yields have risen, equity market prices have declined, and credit spreads have widened. The Canada-US dollar exchange rate has remained relatively stable.

After expanding by 2.4% in the third quarter of last year, GDP in Canada contracted 0.6% in the fourth quarter. This was weaker than expected at the time of the January MPR, but mainly because of a larger-than-expected drawdown in inventories. Domestic demand grew by more than 2% due to strength in consumer and government spending, even as housing markets remained weak.

We continue to expect the Canadian economy to grow modestly as it adjusts to US tariffs and trade policy uncertainty, but recent data suggest that near-term economic growth will be weaker than anticipated in January. The labour market remains soft. Employment gains in the fourth quarter of 2025 were largely reversed in the first two months of 2026, and the unemployment rate rose to 6.7% in February. Looking through the volatility, recent data also suggest ongoing weakness in exports. It’s too early to assess the impact of the conflict in the Middle East on growth in Canada.

CPI inflation eased further to 1.8% in February, down from 2.3% in January. CPI inflation excluding changes in indirect taxes as well as core inflation measures have also come down and are all close to 2%. Food inflation slowed in February but remains elevated. The sharp increase in global energy prices has led to increases in gasoline prices, and this will push up total inflation in the coming months.

Against this overall backdrop, Governing Council decided to maintain the policy rate at 2.25%. With recent data pointing to weaker economic activity and uncertainty elevated, risks to growth look tilted to the downside. At the same time, inflation risks have gone up due to higher energy prices. We will continue to assess the impact of US tariffs and trade policy uncertainty, and how the Canadian economy is adjusting. We are also monitoring the unfolding conflict in the Middle East closely and assessing its impact on growth and inflation. As the outlook evolves, we stand ready to respond as needed. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.

US Producer Prices jumped a bit:

The Labor Department reported Wednesday that its producer price index – which measures inflation before it hits consumers – rose 0.7 per cent from January, and 3.4 per cent from February, 2025. The year-over-year increase was the most since February, 2025.

And the FOMC stood pat:

Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Beth M. Hammack; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; Anna Paulson; and Christopher J. Waller. Voting against this action was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting.

And Powell stated he was going to wait out the investigation:

Mr. Powell also said that even if his successor won confirmation, he would not leave the board entirely until the Trump administration concluded a criminal investigation into his handling of renovations at the Fed’s headquarters. Mr. Powell has previously denounced that inquiry as politically motivated.

Technically, Mr. Powell’s term as chair ends on May 15, but he can continue to serve until a new leader is formally in place. He can also stay on as a governor until 2028. That outcome is likely to infuriate Mr. Trump, who has frequently lobbed personal attacks at Mr. Powell for not lowering interest rates more aggressively.
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Citing precedent under federal law, Mr. Powell said he would continue to serve as chair until lawmakers could approve a successor. That process has only barely begun. Mr. Trump announced in January that he had picked Kevin M. Warsh, a former Fed governor, to take the reins as chair, but his nomination has faced significant roadblocks.
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The Senate has not yet scheduled a hearing to consider Mr. Warsh, raising the odds that he will not be installed before Mr. Powell’s term is complete.

The delay stems from a continuing investigation by the Justice Department into the central bank over renovations of its headquarters. Mr. Powell has previously described that inquiry as a pretext to get him to cut interest rates. Lawmakers from both parties have said they would block Mr. Warsh until the matter is put to rest.

A federal court has also concluded that the investigation is pretextual.

PerpetualDiscounts now yield 5.71%, equivalent to 7.42% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.03% on 2026-3-11. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained steady at the 240bp reported March 11.