Posted: Thursday, May 18, 2017 - 08:46 EDT
The VIX Index spiked yesterday from 10.65 to 15.59, as volatility increased after news surfaced that the Trump administration may have had undisclosed contact with Russia. There was also speculation that President Trump ordered FBI Director Comey to stop an investigation into Russia’s role in the 2016 election before firing him last week. As a result, there was a risk off tone and a flight to safety. Canada 10-year yields were 13bps lower and 10-year Treasury yields were 10bps lower yesterday. The TSX and S&P500 were also down 1.73% and 1.82%, respectively.
The U.S. announced that they are ready to renegotiate NAFTA, starting the three month countdown for talks between the U.S., Canada, and Mexico. Altering NAFTA towards terms more favourable to the U.S. was central to President Trump’s campaign. During a congressional committee this week, it was also indicated that discussion around currency issues could also be on the table. Minutes for last month’s ECB meeting were released, with policymakers pointing towards June as the time to revisit their policy stance after disagreeing over growth risks and the uncertain inflation path. There was also rising debate between members on when and how to withdraw stimulus.
As a result of the risk off sentiment yesterday, Canadian corporate credit spreads were not immune to the global sell off. The focus remained on investor selling, with credit spreads generally wider 3-5bps. Higher beta credits also underperformed. However, there were two new issues in the market yesterday. Daimler issued $400mil 3-year bonds at +80bps over the curve. There continues to be maple issuance as AT&T priced two tranches: $600mil 7-year bonds at +170bps over the curve and $750mil long bonds at +280bps over the curve. With the softness in the market, fills on the AT&T bonds were higher than other new issues of late, somewhere in the 70-80% range.
|Index Level||% Change||QTD||YTD||Q4 2015||Q1 2016||Q2 2016||Q3 2016||Q4 2016||Q1 2017|
|Today||% Change||QTD change||YTD change||Dec 31 2015||March 31 2016||June 30 2016||Sept 30 2016||Dec 31 2016||March 31 2017|
|Canada 5 Year||0.898%||-0.02%||-0.22%||-0.25%||0.727%||0.621%||0.569%||0.615%||1.150%||1.119%|
|Canada 10 Year||1.424%||-0.02%||-0.20%||-0.33%||1.390%||1.225%||1.059%||0.990%||1.750%||1.625%|
|Canada 30 Year||2.081%||-0.02%||-0.22%||-0.27%||2.147%||2.003%||1.714%||1.658%||2.350%||2.302%|
|30yr Generic Corporate A rated Spread||1.260%||0.00%||-0.07%||-0.13%||1.610%||1.510%||1.610%||1.530%||1.390%||1.330%|
|30yr All-in Corporate A rated Yield||3.341%||-0.02%||-0.29%||-0.40%||3.757%||3.513%||3.324%||3.188%||3.740%||3.632%|
|US 10 Year||2.186%||-0.04%||-0.20%||-0.31%||2.28%||1.77%||1.47%||1.60%||2.50%||2.39%|
The information contained herein is intended for advisors for general information only and is compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy. All opinions contained in the commentary and expressed by the portfolio manager are subject to change without notice and are provided in good faith without legal responsibility. All market data is sourced from Bloomberg.