6 Responses to “June 4, 2024”

1. fsabbagh says:

   June 5, 2024 at 10:43 am

   Hi,

   Now that the BOC started cutting rates. I actually thought they wouldn’t – wrong again 😉

   How is this affecting your preferred purchases? Are you thinking of leaning more on the PDs now then the FRDs? (if you are expecting more cuts) Taking profits from FRD run?

2. stusclues says:

   June 5, 2024 at 11:20 am

   “How is this affecting your preferred purchases? Are you thinking of leaning more on the PDs now then the FRDs?”

   Jame’s piece from 2009 is worth a look.
   https://www.himivest.com/media/prefLetterApp_0906.pdf

   Based on his equation …

   YFR = 1.44% + 0.67*YPD

   … and the current state of pricing, discount FRs generally still beat their perp sisters on a total future return basis.

3. DR says:

   June 5, 2024 at 1:35 pm

   may be a bit bumpy as o/n rates trend down but the normalization of the curve is nothing but a good thing for rate resets.

   imo the primary catalyst was the realization that 5yr goc was gonna be say 3ish in perpetuity as opposed to 1ish. that has to a certain extent played out but

   another significant catalyst would be the normalization. lets for arguments sake say o/n and goc5yr at 3.5

   normalization would have 2 significant influences:

   1) shore up credit concerns for all those variable rate borrowing fools (bpo)
   2) free up a truck load of capital that is hiding in GICs

4. niagara says:

   June 5, 2024 at 2:24 pm

   DR, what do you mean by “normalization”? The entire debt problem that we have globally was perpetuated by the abnormal rates we had post 2008-9 financial crisis. The ultra-low (and sometime below zero) rate curves, thanks to idiotic central bankers ZIRP and QE, was ultra-easy money to borrowers, like offering free heroin to a dope addict.

   I dont expect a whole lot of relief for borrowers as the bond market is already pricing in a whack of rate cuts….cuts that may not materialize. It is not inconceivable that, by next year at this time, the BoC is long done its cuts and the 5yr is back over 4%…significantly higher than we are today. Too many people think that 2-ish rates are coming back as they got used to that dor 14-15 years or so.

5. DR says:

   June 5, 2024 at 9:40 pm

   normalization in this context means upward sloping.

6. DR says:

   June 5, 2024 at 10:17 pm

   and yeah, i could make an argument for a rather steep upwardly sloping curve in the future. should the economy continue to bumble along and inflation trend towards target, the o/n rate will trend down but

   5&10 bonds will be largely affected by supply and

   1) gov’t deficits aint going anywhere ensuring healthy supply
   2) a nation of variable rate borrowers, having been taught a lesson these last couple years, will increasingly want to fix, adding to supply
   3) lets not forget the shrinking of the BOC balance sheet