The FOMC held steady today:
Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to 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; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.
… but bond yields rose anyway:
The TSX ended nearly unchanged, but both U.S. and Canadian bond yields rose sharply. U.S. two-year yields reached 5.152%, the highest since 2006, and the Canadian two-year bond yield rose more than 10 basis points to above 5%, its highest since 2001. The Canadian five-year bond yield – influential on fixed mortgage rates – climbed to 16-year highs for the second day in a row.
…
Fed funds futures traders are still pricing in only a partial chance of a further rate hike, with a 29% probability in November and 43% chance by December, according to the CME Group’s FedWatch Tool.
…
The Bank of Canada has also kept the door open to further tightening. It wanted to send the message that interest rates would not be coming down soon when it left them at a 22-year high after a policy meeting on Sept. 6, minutes showed Wednesday.Data on Tuesday showed Canada’s annual inflation rate jumping to 4.0% in August from 3.3% in July.
Implied interest rate probabilities in credit markets now suggest almost a 50% chance the Bank of Canada will hike interest rates again at its next meeting in October. That’s up from about 40% on Tuesday and 20% prior to this week’s inflation report.
This follows yesterday’s announcement of Canadian inflation:
Canada’s annual inflation rate accelerated sharply for the second month in a row, raising the odds that the Bank of Canada could deliver at least one more interest rate increase this year despite hitting pause on monetary policy tightening earlier this month.
The Consumer Price Index rose 4 per cent in August from a year earlier, up from 3.3 per cent in July and the highest annual inflation rate since April, Statistics Canada said Tuesday. Bay Street analysts were expecting inflation to clock in at 3.8 per cent.
The larger-than-expected increase was driven by gasoline prices, which have surged in recent months after oil-production cuts by Saudi Arabia and Russia. But it was more than just energy prices pushing up headline inflation.
Shelter costs accelerated for both renters and homeowners facing higher mortgage payments. While grocery prices grew less quickly in August than in July, food inflation remains far above most other components of the Consumer Price Index.
PerpetualDiscounts now yield 7.01%, equivalent to 9.11% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.48% on 2023-9-15 and since then the closing price has changed from 14.33 to 14.12, a decrease of 147bp in price, with a Duration of 12.08 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies an increase in yield of about 12bp since 9/15 to 5.60%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed sharply to 350bp from the 375bp reported September 13.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,166.4 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 4,155.1 |
| Floater | 11.24 % | 11.35 % | 40,369 | 8.61 | 2 | 0.0000 % | 2,394.6 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1658 % | 3,359.4 |
| SplitShare | 5.03 % | 7.32 % | 38,746 | 2.27 | 7 | 0.1658 % | 4,011.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1658 % | 3,130.2 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1864 % | 2,506.9 |
| Perpetual-Discount | 6.81 % | 7.01 % | 44,521 | 12.47 | 33 | 0.1864 % | 2,733.6 |
| FixedReset Disc | 6.10 % | 9.15 % | 99,362 | 10.63 | 55 | 0.2580 % | 2,064.0 |
| Insurance Straight | 6.83 % | 6.92 % | 63,028 | 12.70 | 17 | 0.0847 % | 2,633.3 |
| FloatingReset | 11.55 % | 11.67 % | 35,224 | 8.41 | 1 | -1.9863 % | 2,301.7 |
| FixedReset Prem | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2580 % | 2,261.9 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2580 % | 2,109.8 |
| FixedReset Ins Non | 6.64 % | 8.38 % | 129,519 | 11.25 | 11 | 0.3726 % | 2,248.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.J | FloatingReset | -1.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 14.31 Evaluated at bid price : 14.31 Bid-YTW : 11.67 % |
| CM.PR.S | FixedReset Disc | -1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 19.86 Evaluated at bid price : 19.86 Bid-YTW : 8.13 % |
| CIU.PR.A | Perpetual-Discount | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 7.02 % |
| IFC.PR.E | Insurance Straight | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 6.81 % |
| BN.PF.D | Perpetual-Discount | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 16.80 Evaluated at bid price : 16.80 Bid-YTW : 7.34 % |
| BN.PR.M | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 16.50 Evaluated at bid price : 16.50 Bid-YTW : 7.25 % |
| MFC.PR.L | FixedReset Ins Non | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 17.25 Evaluated at bid price : 17.25 Bid-YTW : 8.98 % |
| BN.PR.X | FixedReset Disc | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 12.95 Evaluated at bid price : 12.95 Bid-YTW : 10.67 % |
| PVS.PR.K | SplitShare | 1.35 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2029-05-31 Maturity Price : 25.00 Evaluated at bid price : 20.95 Bid-YTW : 8.14 % |
| PWF.PR.T | FixedReset Disc | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 18.45 Evaluated at bid price : 18.45 Bid-YTW : 8.88 % |
| RY.PR.O | Perpetual-Discount | 1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 21.05 Evaluated at bid price : 21.05 Bid-YTW : 5.89 % |
| IFC.PR.A | FixedReset Ins Non | 1.54 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 15.80 Evaluated at bid price : 15.80 Bid-YTW : 8.75 % |
| BIP.PR.E | FixedReset Disc | 1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 8.95 % |
| FTS.PR.H | FixedReset Disc | 1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 12.43 Evaluated at bid price : 12.43 Bid-YTW : 10.22 % |
| BIP.PR.F | FixedReset Disc | 2.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 18.65 Evaluated at bid price : 18.65 Bid-YTW : 9.40 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CU.PR.J | Perpetual-Discount | 73,850 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 17.15 Evaluated at bid price : 17.15 Bid-YTW : 7.01 % |
| GWO.PR.R | Insurance Straight | 65,875 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 17.30 Evaluated at bid price : 17.30 Bid-YTW : 6.98 % |
| FTS.PR.J | Perpetual-Discount | 43,125 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 18.47 Evaluated at bid price : 18.47 Bid-YTW : 6.51 % |
| BNS.PR.I | FixedReset Disc | 33,450 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 20.56 Evaluated at bid price : 20.56 Bid-YTW : 8.05 % |
| CM.PR.P | FixedReset Disc | 28,500 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 16.19 Evaluated at bid price : 16.19 Bid-YTW : 9.49 % |
| CM.PR.Q | FixedReset Disc | 21,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-09-20 Maturity Price : 17.02 Evaluated at bid price : 17.02 Bid-YTW : 9.35 % |
| There were 8 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.J | FixedReset Ins Non | Quote: 19.90 – 21.92 Spot Rate : 2.0200 Average : 1.2682 YTW SCENARIO |
| BN.PF.C | Perpetual-Discount | Quote: 16.54 – 17.50 Spot Rate : 0.9600 Average : 0.5948 YTW SCENARIO |
| BN.PF.G | FixedReset Disc | Quote: 14.19 – 15.40 Spot Rate : 1.2100 Average : 0.8760 YTW SCENARIO |
| SLF.PR.J | FloatingReset | Quote: 14.31 – 14.89 Spot Rate : 0.5800 Average : 0.3845 YTW SCENARIO |
| PWF.PR.Z | Perpetual-Discount | Quote: 18.69 – 19.30 Spot Rate : 0.6100 Average : 0.4683 YTW SCENARIO |
| TD.PF.J | FixedReset Disc | Quote: 20.45 – 20.85 Spot Rate : 0.4000 Average : 0.2843 YTW SCENARIO |