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Equities got whacked today, attributed to a weak bond market:

In afternoon trading, the benchmark U.S. 10-year yield was up 7.2 basis points to 4.613% after earlier hitting 4.638%, the highest level since May 1.

The move in U.S. Treasuries pressured Canadian yields higher, even though swaps markets continue to price in about 60% odds the Bank of Canada will cut interest rates next week. The Canada five-year bond yield, followed particularly closely because of its impact on fixed mortgage rates, rose to as high as 3.848% – coming within a mere 6 basis points of hitting fresh highs of the year.
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Minneapolis Fed President Neel Kashkari said in an interview with CNBC late on Tuesday that the U.S. central bank should wait for significant progress on inflation before cutting interest rates. He added that the Fed could potentially even raise rates if inflation fails to come down further.

His comments, which had pushed yields higher, echoed remarks from other Fed officials, including Governor Christopher Waller.

Meanwhile, the sale of $44 billion in U.S. seven-year debt Wednesday resulted in a high yield of 4.65%, higher than the expected rate at the bid deadline, suggesting that investors sought a premium to purchase the note. The bid-to-cover ratio, a measure of demand was 2.43, lower than last month’s 2.48 and the average of 2.55. The seven-year note sale, which followed equally lackluster auctions of U.S. two-year and five-year notes on Tuesday, raised concerns about future demand for government debt.

All ten major sectors on the Toronto market lost ground, including a decline of 2.39% for heavily-weighted financial.

PerpetualDiscounts now yield 6.51%, equivalent to 8.46% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.13% on 2024-5-24 and since then the closing price of ZLC has changed from 14.88 to 14.59, a decrease of 195bp in price, implying an increase of yields of 16bp (BMO reports a duration of 12.35, but don’t disclose whether this is Macaulay or Modified; I will assume Modified) to 5.29%. Therefore, the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to 315bp from the 345bp reported May 22.

This entry was posted on Wednesday, May 29th, 2024 at 11:00 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.