There was nothing particularly surprising in the Bank of Canada’s policy rate announcement this morning:
The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.
The Bank’s October projection for global economic growth appears to be intact. There is nascent evidence that the global economy is stabilizing, with growth still expected to edge higher over the next couple of years. Financial markets have been supported by central bank actions and waning recession concerns, while being buffeted by news on the trade front. Indeed, ongoing trade conflicts and related uncertainty are still weighing on global economic activity, and remain the biggest source of risk to the outlook. In this context, commodity prices and the Canadian dollar have remained relatively stable.
Growth in Canada slowed in the third quarter of 2019 to 1.3 percent, as expected. Consumer spending expanded moderately, underpinned by stronger wage growth. Housing investment was also a source of strength, supported by population growth and low mortgage rates. The Bank continues to monitor the evolution of financial vulnerabilities related to the household sector. As expected, exports contracted, driven by non-energy commodities. However, investment spending unexpectedly showed strong growth, notably in transportation equipment and engineering projects. The Bank will be assessing the extent to which this points to renewed momentum in investment.
CPI inflation in Canada remains at target, and measures of core inflation are around 2 percent, consistent with an economy operating near capacity. Inflation will increase temporarily in the coming months due to year-over-year movements in gasoline prices. The Bank continues to expect inflation to track close to the 2 percent target over the next two years.
Based on developments since October, Governing Council judges it appropriate to maintain the current level of the overnight rate target. Future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against the sources of resilience in the Canadian economy – notably consumer spending and housing activity. Fiscal policy developments will also figure into the Bank’s updated outlook in January.
David Parkinson of the Globe reminds us that:
The Bank of Canada noted that last week’s third-quarter gross domestic product report, which pegged growth at a modest 1.3-per-cent annualized rate, showed strength in consumer spending, wage growth and housing investment.
But it said it remains concerned about the high household debts that have contributed to that strength. Those have been fed by low borrowing rates, the result of a slump in global bond yields over the summer amid escalating China-U.S. trade hostilities.
Alberta’s credit rating has been downgraded by Moody’s, with the agency citing the volatility in the province’s dependence on oil and continued fiscal pressures.
The province’s rating was downgraded to Aa2 stable from Aa1 negative on Tuesday.
The downgrade, the agency states, reflects Moody’s “opinion of a structural weakness in the provincial economy that remains concentrated and dependent on non-renewable resources … and remains pressured by a lack of sufficient pipeline capacity to transport oil efficiently with no near-term expectation of a significant rebound in oil-related investments.”
The agency’s rating stated that continued spending cuts will be needed for the government to balance the budget by its set target of 2022.
It’s kind of a pity that those hard-nosed conservatives in Alberta don’t have some kind of Heritage Savings Trust Fund, eh? But all the oil money got blown on low taxes and high spending.
PerpetualDiscounts now yield 5.39%, equivalent to 7.01% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.26%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 375bp from the 370bp reported November 27.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| 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 | 0.1336 % | 1,965.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1336 % | 3,607.1 |
| Floater | 6.15 % | 6.33 % | 49,843 | 13.32 | 4 | 0.1336 % | 2,078.8 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0056 % | 3,423.2 |
| SplitShare | 4.66 % | 4.49 % | 44,406 | 3.86 | 7 | 0.0056 % | 4,088.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0056 % | 3,189.7 |
| Perpetual-Premium | 5.54 % | -15.99 % | 55,749 | 0.09 | 10 | 0.1291 % | 3,046.2 |
| Perpetual-Discount | 5.29 % | 5.39 % | 68,371 | 14.79 | 25 | 0.0310 % | 3,264.0 |
| FixedReset Disc | 5.66 % | 5.75 % | 188,204 | 14.26 | 66 | 0.0765 % | 2,079.9 |
| Deemed-Retractible | 5.18 % | 5.28 % | 70,119 | 14.97 | 27 | 0.1349 % | 3,216.0 |
| FloatingReset | 6.40 % | 6.61 % | 129,270 | 13.10 | 2 | -0.9909 % | 2,405.8 |
| FixedReset Prem | 5.11 % | 3.71 % | 156,808 | 1.56 | 20 | 0.0820 % | 2,629.2 |
| FixedReset Bank Non | 1.95 % | 4.13 % | 62,401 | 2.09 | 3 | 0.2342 % | 2,703.8 |
| FixedReset Ins Non | 5.55 % | 5.80 % | 126,276 | 14.17 | 22 | 0.3280 % | 2,110.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.F | FloatingReset | -1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 13.55 Evaluated at bid price : 13.55 Bid-YTW : 6.61 % |
| HSE.PR.E | FixedReset Disc | -1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 17.05 Evaluated at bid price : 17.05 Bid-YTW : 7.52 % |
| MFC.PR.Q | FixedReset Ins Non | -1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 18.27 Evaluated at bid price : 18.27 Bid-YTW : 5.80 % |
| BIP.PR.E | FixedReset Disc | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 21.84 Evaluated at bid price : 22.15 Bid-YTW : 5.64 % |
| BAM.PF.A | FixedReset Disc | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 19.47 Evaluated at bid price : 19.47 Bid-YTW : 6.01 % |
| TRP.PR.B | FixedReset Disc | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 11.10 Evaluated at bid price : 11.10 Bid-YTW : 6.34 % |
| MFC.PR.L | FixedReset Ins Non | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 16.15 Evaluated at bid price : 16.15 Bid-YTW : 5.79 % |
| TRP.PR.E | FixedReset Disc | 1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 15.70 Evaluated at bid price : 15.70 Bid-YTW : 6.22 % |
| SLF.PR.I | FixedReset Ins Non | 1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 18.15 Evaluated at bid price : 18.15 Bid-YTW : 5.82 % |
| BIP.PR.A | FixedReset Disc | 2.54 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 20.20 Evaluated at bid price : 20.20 Bid-YTW : 6.31 % |
| MFC.PR.M | FixedReset Ins Non | 3.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 17.35 Evaluated at bid price : 17.35 Bid-YTW : 5.64 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.D | FixedReset Disc | 174,176 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 15.75 Evaluated at bid price : 15.75 Bid-YTW : 6.31 % |
| BMO.PR.E | FixedReset Disc | 78,200 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 19.34 Evaluated at bid price : 19.34 Bid-YTW : 5.69 % |
| RY.PR.J | FixedReset Disc | 65,103 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 5.74 % |
| TRP.PR.F | FloatingReset | 64,220 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 13.55 Evaluated at bid price : 13.55 Bid-YTW : 6.61 % |
| BIP.PR.D | FixedReset Disc | 62,660 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 22.46 Evaluated at bid price : 22.90 Bid-YTW : 5.75 % |
| MFC.PR.I | FixedReset Ins Non | 60,300 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-12-04 Maturity Price : 18.70 Evaluated at bid price : 18.70 Bid-YTW : 5.90 % |
| There were 55 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.Q | FixedReset Ins Non | Quote: 18.27 – 18.69 Spot Rate : 0.4200 Average : 0.2611 YTW SCENARIO |
| BMO.PR.F | FixedReset Disc | Quote: 24.05 – 24.40 Spot Rate : 0.3500 Average : 0.2122 YTW SCENARIO |
| BIP.PR.E | FixedReset Disc | Quote: 22.15 – 22.66 Spot Rate : 0.5100 Average : 0.3837 YTW SCENARIO |
| MFC.PR.O | FixedReset Ins Non | Quote: 25.61 – 25.94 Spot Rate : 0.3300 Average : 0.2135 YTW SCENARIO |
| ELF.PR.H | Perpetual-Premium | Quote: 25.21 – 25.61 Spot Rate : 0.4000 Average : 0.2894 YTW SCENARIO |
| EMA.PR.C | FixedReset Disc | Quote: 17.20 – 17.63 Spot Rate : 0.4300 Average : 0.3202 YTW SCENARIO |
“Housing investment was also a source of strength”
Jeez Louise. WTF are we thinking in this country? With 2/3 of our national wealth already in housing, we are housing ourselves into major economic difficulties. I’d love to see an analysis of housing area per person (square feet or meters per person) compared to the rest of the world. I have no doubt that it would be grossly disproportate to not only developing countries but much of the developed world too.
I’m currently temporarily clipping my preferred share dividends here in Indonesia where electricity use per person is 1/10th of that in Alberta (back of the napkin based on grid size and population). Its truly remarkable that in all of our clamour about climate change that living space per person is not really part of the conversation, yet.
How much is enough? I personally know individuals that “need” a few thousand square feet per person. Each square foot needs to be lit, heated, maintained, etc.
So as not to rant without a solution, tax the hell out of property and drop income taxes. Watch CO2-e emissions fall precipitously, cities become more liveable and capital flow to much higher and better use (jobs!).
Rant ended, for now.
Some quick research shows that my postulating is correct. Canada is second only to the US in living space per person at 618 sq feet per person. Since so much is online I leave it to the reader to follow up.
My gut feel is that 800 to 1000 square feet will feel luxurious to most people and ought to be priced that way.
There’s a fascinating chart of new-home sizes here – with sources listed, well done!
here in Indonesia where electricity use per person is 1/10th of that in Alberta
Great chart here.
tax the hell out of property and drop income taxes.
I support this; we are seeing the effects of low property taxes in the current housing price bubble.
tax the hell out of property and drop income taxes.
The problem is that they will increase the property taxes and NOT drop the income taxes. The local governments will instead provide more ‘services’ to everyone and consume all the tax.
I agree with the broader theme though, we live very luxuriously. We should also start taxing the gas guzzlers a lot more, say something like a 10 to 20% surtax on big SUVs. And then you’ll see people going back to car driving. That alone would cut the emissions a lot. There was a study I read somewhere on this theme that SUVs alone accounted for most of the global emission increases after power consumption. This is a link:
https://www.theguardian.com/environment/ng-interactive/2019/oct/25/suvs-second-biggest-cause-of-emissions-rise-figures-reveal
Perhaps establish some thresholds, like 500 sqft/person and anything beyond that would attract carbon tax.
Same with cars and so many other things.
But perhaps we should start with taxing of private jets fuel first. Have a levy of 500% or perhaps 1000% over the regular oil. But those conversations will never happen as they directly impact the top 20,000 or so people in the world. Heads of state, billionaires can easily afford to pay for this and it’s a much more palatable idea.
Skeptical – I can get behind property surtaxing and some targeted luxury taxes such as on private jets. This does seem to be an easy one.
Carbon taxes will do some of the heavy lifting here. Higher carbon taxes will make large homes incrementally more expensive to operate, offset of course if owners use their rebates to make energy efficiency upgrades. They will make SUVs incrementally more expensive to operate than smaller cars. On the margin, they ought to on their own start influencing decisions but in the longer run more is needed because as homes and autos decarbonize, there are still large urban planning and capital efficiency gains to come from smaller (and fewer) cars and smaller housing footprints.
I don’t like the idea of thresholds, for the same reason I don’t like targetted benefits.
If you set a property tax threshold at 500 sqft/person, you’ll get a lot of places being built with 499sqft, 999 sqft, etc. – and that’s even before people start playing games with residency! It distorts the market and it makes the lawyers rich. Tax everything at the same rate, I say, and take care of the poor with refundable tax credits.
Much better I agree James. I can support other messy part way measures if they are the only politically available path.
The idea of taxing Thresholds is Crazy !!! We bought our home years ago when we had 6 people in our household… So what is one to do when one in just the last few years, one person goes to a nursing home, and another goes off to school ?
Furthermore, my parents own a very small bungalow, and they are probably just at the threshold.. But if one of them dies, they would be deemed as living in a home sized in luxury !!!!!
“So what is one to do when one in just the last few years, one person goes to a nursing home, and another goes off to school?”
Right. No thresholds. Let market-based property taxes and carbon levies do their work. I will note that we will end up in the same place that rising property taxes already do with seniors. Poor Grandma can’t afford to stay in her home (that just happens to be in the center of the City now although in her day it was a blue collar suburb). This is a societal choice – whether to provide assistance or not. Having moved numerous times myself, I have little empathy for the situation. Sell out and move into a glamour small apartment or seniors lodge.