Jobs? There’s lots of jobs!
The number of Canadians receiving jobless benefits through Employment Insurance has fallen to a record low, another sign of a tight labour market that is creating plenty of job opportunities.
In March, around 388,000 people received what are known as regular jobless benefits through the EI system, a slight decrease from February and down 27 per cent from a year earlier, according to figures published Thursday by Statistics Canada. (People can also access the EI program for other benefits such as sickness and parental leave.)
This was the lowest number of regular EI beneficiaries in Statscan records that date back to 1997, not including the early months of the COVID-19 pandemic, when the EI program was largely shoved aside and the Canada Emergency Response Benefit (CERB) became the primary mode of providing financial assistance to millions of laid-off people.
That’s good news for construction workers, too!
Real estate developers are launching hundreds of new condo units in the Toronto region this year, as buyer demand grows after months of fretting over higher interest rates.
Ever since the Bank of Canada announced in late January that it would take a break from hiking interest rates, activity in the residential real estate market has started to rebound.
Preconstruction homes are those that have yet to break ground or are under construction, and sales for these projects are often viewed as a bet on the future, because buyers wait years for their units.
The Hoover Institution has released a Working Paper by Amit Seru, Erica Xuewei Jiang, Gregor Matvos and Tomasz Piskorski titled Limited Hedging and Gambling for Resurrection by U.S. Banks During the 2022 Monetary Tightening?:
We analyze the extent to which U.S. banks hedged their asset exposure as the monetary policy tightened in 2022. We use call reports data for interest rate swaps covering close to 95% of all bank assets and supplement it with hand-collected data on broader hedging activity from 10K and 10Q filings for all publicly traded banks (68% of all bank assets). Interest rate swap use is concentrated among larger banks who hedge a small amount of their assets. Over three quarters of all reporting banks report no material use of interest rate swaps. Swap users represent about three quarters of all bank assets, but on average hedge only 4% of their assets and about one quarter of their securities. Only 6% of aggregate assets in the U.S. banking system are hedged by interest rate swaps. We also find limited hedging of interest rate exposure by publicly traded banks and by banks which report the duration of their assets. The use of hedging and other interest rate derivatives was not large enough to offset a significant share of the $2.2 trillion loss in the value of U.S. banks’ assets (Jiang et al. 2023). The duration of bank assets increased during 2022, exposing banks to additional interest rate risk. We find slightly less hedging for banks whose assets were most exposed to interest rate risk. Banks with the most fragile funding – i.e., those with highest uninsured leverage — sold or reduced their hedges during the monetary tightening. This allowed them to record accounting profits but exposed them to further rate increases. These actions are reminiscent of classic gambling for resurrection: if interest rates had decreased, equity would have reaped the profits, but if rates increased, then debtors and the FDIC would absorb the losses.
The BoC has released its Financial System Review 2023:
As the adjustment to higher interest rates continues, future periods of stress are possible, and they could persist longer than the acute stress that happened in March. This could exacerbate two existing vulnerabilities discussed in this document:
- Fragile liquidity in fixed-income markets—in an environment of increased asset price volatility and elevated funding costs, banks could have less capacity to provide liquidity to financial market participants.
- The ability of households to service their debt—additional sharp increases to bank funding costs could result in higher lending rates. This would add to the high debt-service burden many mortgage holders already face, leaving them more vulnerable to a decline in income.
…
The banking system plays a key role in transmitting changes in monetary policy to the economy. As expected, higher global interest rates are increasing the funding costs of Canadian banks, both in wholesale markets and through increased interest rates on deposits.Compared with their international peers, large Canadian banks rely more heavily on wholesale funding, such as medium- to long-term debt and commercial paper (Chart 4).3
This greater reliance on wholesale funding primarily reflects the fact that Canadian banks keep a larger share of loans and mortgages on their balance sheets than US banks do. As a result, Canadian banks are more reliant on sources of funding that are susceptible to price fluctuations due to market stresses. The cost of wholesale funding depends on financial market conditions, including the prevailing interest rate environment. During the recent stress in the global banking sector, the Bank’s regular engagement with financial system participants revealed that the volume of wholesale funding at terms greater than one year declined significantly, reflecting higher costs.
Retail and commercial deposits are the largest sources of funding for Canadian banks. As interest rates rise, customers move their funds from demand deposits, such as chequing and savings accounts, to term deposits, such as guaranteed investment certificates (Chart 5). Banks typically offer higher interest rates on term deposits, which provide a more stable source of funding but also increase their funding costs.4
…
Over the past year, macroeconomic and geopolitical events have led to greater volatility in fixed-income markets and a deterioration in market liquidity. The cost of trading has steadily increased over this period, reflecting decreased liquidity in these markets (Chart 8). More recently, the global banking stress temporarily caused a further reduction in fixed-income market liquidity.
…
- Elevated interest rates and declining house prices have reduced the financial flexibility of many households. While most households are proving resilient to increases in debt-servicing costs, early signs of financial stress are emerging. The share of households affected by higher interest rates will continue to rise over the next few years as homeowners renew their mortgages.
- High debt-servicing costs and low homeowner equity make households more vulnerable to default if they experience a drop in income. A severe recession with significant unemployment could lead to more defaults and therefore credit losses for lenders. A rise in credit losses typically causes banks to restrict how much credit they offer to households and firms, potentially amplifying a recession.
Predictions are a dime a dozen, but I put higher than average credence in this one:
Canadians should not expect interest rates to fall back to very low levels seen over the past decade, Bank of Canada Governor Tiff Macklem said on Thursday.
Speaking at a news conference, Mr. Macklem warned that the era of historically low borrowing costs that followed the 2008-09 financial crisis is a thing of the past. The surge in inflation over the past two years, followed by the central bank’s recent rate-hike campaign, have put the economy on a path on which borrowing costs will be persistently higher.
“Nobody should expect that interest rates are going to go back down to the very low levels that we’ve seen over the last decade or so,” Mr. Macklem told reporters following the release of the central bank’s annual Financial System Review.
“We’re in a transition period to a world where interest rates are going to be higher than what many people have gotten used to,” he added. “That transition is going to take a while. And through that transition, that creates some risks.”
…
Mr. Macklem isn’t alone in this prediction. A number of other central bank chiefs have suggested over the past year that interest rates could be higher going forward due to structural changes in the global economy. The process of globalization, which has put downward pressure on consumer prices, is stalling amid new geopolitical rivalries. Work forces are aging, potentially adding upward pressure on wages.
| 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 % | 2,152.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 4,128.9 |
| Floater | 10.47 % | 10.56 % | 51,337 | 9.03 | 2 | 0.0000 % | 2,379.5 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.7149 % | 3,360.1 |
| SplitShare | 5.00 % | 7.59 % | 43,882 | 2.54 | 7 | -0.7149 % | 4,012.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.7149 % | 3,130.9 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1888 % | 2,717.4 |
| Perpetual-Discount | 6.28 % | 6.36 % | 43,294 | 13.36 | 34 | -0.1888 % | 2,963.2 |
| FixedReset Disc | 5.98 % | 8.14 % | 85,736 | 11.50 | 63 | 0.0778 % | 2,081.4 |
| Insurance Straight | 6.14 % | 6.29 % | 57,356 | 13.44 | 19 | -0.2727 % | 2,929.9 |
| FloatingReset | 10.63 % | 11.24 % | 52,085 | 8.55 | 2 | -0.1722 % | 2,353.0 |
| FixedReset Prem | 6.96 % | 6.69 % | 317,081 | 12.67 | 1 | 0.3577 % | 2,322.8 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0778 % | 2,127.7 |
| FixedReset Ins Non | 6.05 % | 7.43 % | 78,408 | 11.96 | 11 | 0.0626 % | 2,306.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| FTS.PR.H | FixedReset Disc | -4.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 11.54 Evaluated at bid price : 11.54 Bid-YTW : 9.27 % |
| TD.PF.E | FixedReset Disc | -2.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 17.15 Evaluated at bid price : 17.15 Bid-YTW : 8.20 % |
| GWO.PR.N | FixedReset Ins Non | -2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 11.75 Evaluated at bid price : 11.75 Bid-YTW : 8.64 % |
| FTS.PR.K | FixedReset Disc | -1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 15.65 Evaluated at bid price : 15.65 Bid-YTW : 8.42 % |
| PVS.PR.G | SplitShare | -1.54 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2026-02-28 Maturity Price : 25.00 Evaluated at bid price : 23.60 Bid-YTW : 7.60 % |
| CU.PR.J | Perpetual-Discount | -1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 18.85 Evaluated at bid price : 18.85 Bid-YTW : 6.33 % |
| PWF.PF.A | Perpetual-Discount | -1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 18.02 Evaluated at bid price : 18.02 Bid-YTW : 6.32 % |
| CU.PR.F | Perpetual-Discount | -1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 18.05 Evaluated at bid price : 18.05 Bid-YTW : 6.26 % |
| TD.PF.J | FixedReset Disc | -1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 21.21 Evaluated at bid price : 21.21 Bid-YTW : 7.02 % |
| BNS.PR.I | FixedReset Disc | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 7.01 % |
| PVS.PR.K | SplitShare | -1.26 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2029-05-31 Maturity Price : 25.00 Evaluated at bid price : 21.97 Bid-YTW : 7.18 % |
| BIP.PR.E | FixedReset Disc | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 20.94 Evaluated at bid price : 20.94 Bid-YTW : 7.79 % |
| SLF.PR.C | Insurance Straight | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 18.87 Evaluated at bid price : 18.87 Bid-YTW : 5.99 % |
| PVS.PR.H | SplitShare | -1.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2027-02-28 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 7.17 % |
| GWO.PR.M | Insurance Straight | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 22.77 Evaluated at bid price : 23.05 Bid-YTW : 6.39 % |
| BMO.PR.W | FixedReset Disc | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 16.30 Evaluated at bid price : 16.30 Bid-YTW : 8.19 % |
| BIP.PR.A | FixedReset Disc | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 9.49 % |
| BMO.PR.T | FixedReset Disc | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 16.34 Evaluated at bid price : 16.34 Bid-YTW : 8.22 % |
| BIP.PR.B | FixedReset Disc | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 21.59 Evaluated at bid price : 22.00 Bid-YTW : 8.48 % |
| CM.PR.Y | FixedReset Disc | 1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 22.44 Evaluated at bid price : 22.90 Bid-YTW : 7.40 % |
| BN.PF.G | FixedReset Disc | 1.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 14.50 Evaluated at bid price : 14.50 Bid-YTW : 9.84 % |
| IFC.PR.C | FixedReset Disc | 1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 16.80 Evaluated at bid price : 16.80 Bid-YTW : 8.05 % |
| MFC.PR.Q | FixedReset Ins Non | 1.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 7.30 % |
| BN.PR.Z | FixedReset Disc | 2.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 18.88 Evaluated at bid price : 18.88 Bid-YTW : 8.35 % |
| PWF.PR.P | FixedReset Disc | 2.94 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 12.25 Evaluated at bid price : 12.25 Bid-YTW : 8.71 % |
| POW.PR.A | Perpetual-Discount | 2.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 21.91 Evaluated at bid price : 22.15 Bid-YTW : 6.40 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| MFC.PR.J | FixedReset Ins Non | 67,425 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 21.62 Evaluated at bid price : 21.96 Bid-YTW : 6.91 % |
| MFC.PR.K | FixedReset Ins Non | 44,000 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 17.81 Evaluated at bid price : 17.81 Bid-YTW : 7.83 % |
| TRP.PR.E | FixedReset Disc | 31,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 14.47 Evaluated at bid price : 14.47 Bid-YTW : 9.46 % |
| IFC.PR.F | Insurance Straight | 31,224 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 22.20 Evaluated at bid price : 22.45 Bid-YTW : 5.99 % |
| BMO.PR.E | FixedReset Disc | 30,063 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 20.01 Evaluated at bid price : 20.01 Bid-YTW : 7.43 % |
| TD.PF.C | FixedReset Disc | 28,500 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-18 Maturity Price : 16.18 Evaluated at bid price : 16.18 Bid-YTW : 8.25 % |
| There were 8 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRP.PR.E | FixedReset Disc | Quote: 14.47 – 17.45 Spot Rate : 2.9800 Average : 1.8089 YTW SCENARIO |
| CU.PR.J | Perpetual-Discount | Quote: 18.85 – 22.00 Spot Rate : 3.1500 Average : 2.0721 YTW SCENARIO |
| FTS.PR.H | FixedReset Disc | Quote: 11.54 – 12.45 Spot Rate : 0.9100 Average : 0.6519 YTW SCENARIO |
| BN.PR.B | Floater | Quote: 11.40 – 12.17 Spot Rate : 0.7700 Average : 0.5189 YTW SCENARIO |
| BMO.PR.Y | FixedReset Disc | Quote: 17.00 – 17.79 Spot Rate : 0.7900 Average : 0.5433 YTW SCENARIO |
| CCS.PR.C | Insurance Straight | Quote: 19.98 – 21.00 Spot Rate : 1.0200 Average : 0.7783 YTW SCENARIO |