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 |