PrefBlog

The markets took the Bank of Canada rate hike in stride:

Canada’s main stock index edged lower on Wednesday to its lowest closing level in nearly three weeks as a drop in oil prices weighed on energy shares and the Bank of Canada raised interest rates to the highest level in almost 15 years.

The S&P/TSX composite index ended down 16.95 points, or 0.1%, at 19,973.22, its fourth straight day of declines and its lowest closing level since Nov. 17.

U.S. benchmark S&P 500 also dipped as investors weighed potential recession fears linked to the pace of the Federal Reserve’s monetary policy tightening.
…
Money market participants see a 91% chance that the Fed will increase its key benchmark rate by 50 basis points in December to 4.25%-4.50%, with rates peaking in May 2023 at 4.93%.

PerpetualDiscounts now yield 6.57%, equivalent to 8.54% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.02% on 2022-11-30 and since then the closing price has changed from 15.13 to 15.70, an increase of 377bp in price, with a Duration of 12.37 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies a decline in yield of about 30bp since 11/30 to 4.72%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened dramatically to 380bp from the 345bp reported November 30.

This entry was posted on Wednesday, December 7th, 2022 at 10:46 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.