Market Update

Tsy yields 1.5-2.5 bps higher on higher than avg volume in TY futs (440k), long end steeper reversing some of yesterday’s post FOMC bull flattening which had seen longer tsy yields at YTD lows, US 10Y now 2.148 (+2.5bps). Core EGBs lower, underperforming tsys by 3-5bps. Gilt yields 6-9 bps higher after BOE rate decision showed 5-3 vote to leave rates unch with 3 members in favor of hiking rates vs exp 7-1 split. 10Y bund spread -187bps approaching recent narrows (-185 from late May).  In Canada, GOCs  lower in line with tsys, 10Y 1.52% (+2.8bps) , 5s30s 20bps flatter over the week, 10s30s accounting for ~8bps of the narrowing. Given the hawkish rhetoric from the BOC of late  it is not surprising that the GOC curve has out flattened the US tsy curve of late, the 10s30s BOX is at the richest level since Nov (i.e. our back end looks relatively rich vs the US). Today the BOC auctions $3.3bln of 3Y- 0.75% Sep 2020s, the final reopening as outstanding is set to rise to $19.5bln post auction. 3Y yields are 20bps higher since the last 3Y May 4th, 25bps higher in the last two weeks, 2s5s 8bps flatter since the last auction, thou the Sep20/May 19 (3Y2Y) roll is ~1.5bps steeper going into supply. PSP Capital (AAA/Aaa) 5Y just launched at ~56.5 ( Onts +3). Provincials opening unch, Ont 48 issued at 85 yest was well received, immediately went 84.5 bis, Ont 48/27 curve flatter 9.3/9.1  showing demand for long provis despite lower all in long term yields, outperformance of GOC long end.

News headlines 

Commodity Drop Saps Stocks; Dollar Gains After Fed: Markets Wrap (Bloomberg) A broad decline in commodities dragged European equities lower, while U.S. stock futures also dropped on a report the probe into Russian meddling in the 2016 election may also examine President Donald Trump’s conduct. The dollar rose after the Fed’s hawkish tone on Wednesday.

BOE Policy Split Deepens as Three Officials Seek Rate Hike (Bloomberg) The split among Bank of England policy makers widened this month as two officials joined Kristin Forbes in her call for a rate increase, warning that inflation could rise more than previously thought.

Oil hits six-week low as OPEC fails to curb oversupply (Reuters) Oil prices dropped to six-week lows on Thursday, under pressure from high global inventories and doubts about OPEC’s ability to implement agreed production cuts. Brent crude oil fell 30 cents to $46.70 a barrel, its weakest since May 5 and just above six-month lows, before recovering a little to trade around $46.90 by 0945 GMT.

Growth worries push stocks lower, Fed hike lifts dollar (Reuters) Stocks fell in Europe and Asia on Thursday as investor concern over the pace of U.S. economic growth overshadowed a widely telegraphed rise in Federal Reserve interest rates that lifted the dollar off recent lows.

Hunt for Yield Leads to Canada Hospitals, Universities Debt (Bloomberg) Investors who own the debt of McGill University, University of Toronto and Canada’s biggest hospitals are reaping the rewards midway through a year defined by a global search for yield.

Election means ‘new game’ of Brexit negotiations for the City (Reuters) Large banks are planning to step up their lobbying of the British government as they sense an opportunity to change its priorities in the upcoming Brexit negotiations, John McFarlane, who chairs the UK’s main financial lobby group, told Reuters.

Overnight markets 

Overview: US 10yr note futures are down -0.197% at 126-22, S&P 500 futures are down -0.57% at 2421.25, Crude oil futures are down -0.36% at $44.57, Gold futures are down -1.7% at $1254.2, DXY is up 0.48% at 97.401, CAD/USD is up 0.25% at 0.753.

US Economic Data

8:30 AM Import Price Index, m/m, May,-0.3% , est. -0.1% (prior 0.5%, revised 0.2%)
Import Price Index, y/y, May, 2.1%, est. 2.9% (prior 4.1%, revised 3.6%)
Initial Jobless Claims, Jun 10, 237k, est. 241k (prior 245k)
Continuing Claims, Jun 3, 1935k, est. 1920k (prior 1917k, revised 1929k)
Philadelphia Fed Business Index, Jun, 27.6, est. 24.9 (prior 38.8)
Empire Manufacturing, Jun, 19.8, est. 5.0 (prior -1.0)
9:15 AM Industrial Production, m/m, May, est. 0.2% (prior 1.0%)
Capacity Utilization, May, est. 76.8% (prior 76.7%)
Manufacturing (SIC) Production, May, est. 0.1% (prior 1.0%)
9:45 AM Bloomberg Consumer Comfort Index, Jun 11, (prior 49.9)
10:00 AM NAHB Housing Market Index, Jun, est. 70 (prior 70)
4:00 PM Total Net TIC Flows, Apr, (prior -$0.7b)
Net Long-term TIC Flows, Apr, (prior $59.8b)

Canadian Economic Data 

8:30 AM Manufacturing Sales, m/m, Apr, 1.1%, est. 0.9% (prior 1.0%, revised 0.8%)
9:00 AM Existing Home Sales. m/m, May, (prior -1.7%)

Disclosure and Disclaimer

The following sources of information have been, or may have been, used partially or in their entirety to compile the herein provided CTI Capital Securities Inc. (“CTI Capital”) ‘Morning Comments.’ CTI Capital believes these sources to be generally reliable, however, as said sources are varied and from third parties, CTI Capital cannot guarantee the accuracy or completeness of said information: Canadian Press (CP); Bloomberg News (BN); Wall Street Journal (WSJ); Stone & McCarthy Research Associates (SMRA); New York Times (NYT); Financial Times (FT); Market News International (MNI); Globe and Mail; Associated Press (AP); CNW Group (CNW); Reuters; Business News Network (BNN); Market Watch; and others.

Ivan Greenstein, Stephan Buu, David Leclair-Legault

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

Tel : (514)-861-0240
Fax: (514)-861-3230