PrefBlog

Bonds got clobbered today:

Short-term bond yields were sharply higher in both the U.S. and Canada. Money markets are now fully pricing in a quarter-point interest rate hike by the Bank of Canada by this July’s policy meeting. Almost three quarter-point rate hikes are priced in by the end of this year. Canada’s 2-year bond yield, sensitive to central bank policy moves, was up 23 basis points by late afternoon to its highest level in more than a year. For the Fed, interest-rate futures were pricing ⁠around a ​25% chance of a rate hike by December.
…
Government bond yields in the U.S. and Europe spiked on Friday as investor concern intensified over the inflationary impact of the war-driven global energy shock, with expectations the pressure will not ease anytime soon.

In the U.S., 10-year rates rose to their highest since last summer. Investors, long focused on the prospect of further interest-rate cuts this year, shifted to pricing in a moderate chance that the Fed will be forced to hike later this year.

British 10-year government borrowing costs also soared, rising to their highest level since the global financial crisis. The 10-year gilt yield pushed above 5 per cent, widely seen as a pressure point reflecting Britain’s economic vulnerability to rising energy costs.

German 10-year government bond yields hit their highest since the euro zone crisis in 2011. The 10-year yield , a benchmark for European government borrowing costs, hit a high of 3.025 per cent and was last up 7 basis points (bps) on the day. Yields rise as prices fall and vice versa.

ECB policymakers warned of growing inflation risks on Friday, but stopped short of calling for tighter policy, even as a host of brokerages started penciling in rate hikes from as soon as April.
…
About 11am – JH Canada’s five-year bond yield is up about 12 basis points to 3.196% and at its highest since June 2024.

It started this week at about 3.062 per cent.

If this surge in yields sticks for long, it will undoubtedly result in upward pressure on fixed mortgages rates. It’s also likely to result in higher GIC payouts.

Long Canada yields were up 9bp on the day, while five-years were up an incredible 18bp to 3.23%.

The BoC stood pat today:

The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

The war in the Middle East has increased volatility in global energy prices and financial markets, and heightened the risks to the global economy. The breadth and duration of the conflict, and hence its economic impacts, are highly uncertain.

Prior to the war, the global economy was on pace to grow at around 3%, as expected in the January Monetary Policy Report (MPR). Economic growth in the United States has moderated but remains solid, driven by consumption and strong AI-related investment. US inflation remains above target and has evolved largely as expected. In the euro area, domestic demand is supporting growth while exports have contracted. China’s economy continues to be boosted by strength in exports, but domestic demand remains weak.

Since the outbreak of the conflict in the Middle East, global oil and natural gas prices have risen sharply, and this will boost global inflation in the near-term. In addition to energy supply disruptions, transportation bottlenecks stemming from the effective closure of the Strait of Hormuz could impact the supply of other commodities, such as fertilizer. Financial conditions have tightened from accommodative levels. Global bond yields have risen, equity market prices have declined, and credit spreads have widened. The Canada-US dollar exchange rate has remained relatively stable.

After expanding by 2.4% in the third quarter of last year, GDP in Canada contracted 0.6% in the fourth quarter. This was weaker than expected at the time of the January MPR, but mainly because of a larger-than-expected drawdown in inventories. Domestic demand grew by more than 2% due to strength in consumer and government spending, even as housing markets remained weak.

We continue to expect the Canadian economy to grow modestly as it adjusts to US tariffs and trade policy uncertainty, but recent data suggest that near-term economic growth will be weaker than anticipated in January. The labour market remains soft. Employment gains in the fourth quarter of 2025 were largely reversed in the first two months of 2026, and the unemployment rate rose to 6.7% in February. Looking through the volatility, recent data also suggest ongoing weakness in exports. It’s too early to assess the impact of the conflict in the Middle East on growth in Canada.

CPI inflation eased further to 1.8% in February, down from 2.3% in January. CPI inflation excluding changes in indirect taxes as well as core inflation measures have also come down and are all close to 2%. Food inflation slowed in February but remains elevated. The sharp increase in global energy prices has led to increases in gasoline prices, and this will push up total inflation in the coming months.

Against this overall backdrop, Governing Council decided to maintain the policy rate at 2.25%. With recent data pointing to weaker economic activity and uncertainty elevated, risks to growth look tilted to the downside. At the same time, inflation risks have gone up due to higher energy prices. We will continue to assess the impact of US tariffs and trade policy uncertainty, and how the Canadian economy is adjusting. We are also monitoring the unfolding conflict in the Middle East closely and assessing its impact on growth and inflation. As the outlook evolves, we stand ready to respond as needed. The Bank is committed to ensuring that Canadians continue to have confidence in price stability through this period of global upheaval.

US Producer Prices jumped a bit:

The Labor Department reported Wednesday that its producer price index – which measures inflation before it hits consumers – rose 0.7 per cent from January, and 3.4 per cent from February, 2025. The year-over-year increase was the most since February, 2025.

And the FOMC stood pat:

Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Beth M. Hammack; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; Anna Paulson; and Christopher J. Waller. Voting against this action was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting.

And Powell stated he was going to wait out the investigation:

Mr. Powell also said that even if his successor won confirmation, he would not leave the board entirely until the Trump administration concluded a criminal investigation into his handling of renovations at the Fed’s headquarters. Mr. Powell has previously denounced that inquiry as politically motivated.

Technically, Mr. Powell’s term as chair ends on May 15, but he can continue to serve until a new leader is formally in place. He can also stay on as a governor until 2028. That outcome is likely to infuriate Mr. Trump, who has frequently lobbed personal attacks at Mr. Powell for not lowering interest rates more aggressively.
…
Citing precedent under federal law, Mr. Powell said he would continue to serve as chair until lawmakers could approve a successor. That process has only barely begun. Mr. Trump announced in January that he had picked Kevin M. Warsh, a former Fed governor, to take the reins as chair, but his nomination has faced significant roadblocks.
…
The Senate has not yet scheduled a hearing to consider Mr. Warsh, raising the odds that he will not be installed before Mr. Powell’s term is complete.

The delay stems from a continuing investigation by the Justice Department into the central bank over renovations of its headquarters. Mr. Powell has previously described that inquiry as a pretext to get him to cut interest rates. Lawmakers from both parties have said they would block Mr. Warsh until the matter is put to rest.

A federal court has also concluded that the investigation is pretextual.

PerpetualDiscounts now yield 5.71%, equivalent to 7.42% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.03% on 2026-3-11. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained steady at the 240bp reported March 11.

The SEC has released a lot of statistics that may be of interest:

The Securities and Exchange Commission’s Division of Economic and Risk Analysis (DERA) published a new report on security based swap dealers (SBSDs) and updated statistics and data visualizations on initial public offerings (IPOs), follow-on registered offerings, corporate bond offerings, Regulation A offerings, Regulation Crowdfunding offerings, Regulation D offerings, municipal advisors, transfer agents, SBSDs, and asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) issuances.
…
Market activity increased across several categories in 2025. The updated statistics show that in 2025 there were 374 IPOs raising over $70 billion in proceeds, up from 246 IPOs raising $39 billion in 2024. The number of follow-on registered offerings increased slightly in 2025, while the amount of capital raised in the offerings decreased slightly. Amounts raised in unregistered offerings also increased in 2025. There were 34,553 Regulation D offerings in 2025 compared to 32,554 Regulation D offerings in 2024. These offerings raised $2.1 trillion in capital in 2024 and $2.4 trillion in 2025.
…
These findings and other statistics can be found on the SEC’s public statistics and data visualizations webpage. The webpage provides statistics presented in time series charts to show market trends, pie charts to show distribution across different categories, as well as heat maps to show geographic distributions. The visuals are interactive and downloadable, thus allowing the public to explore the information they are interested in.

In addition to the statistics updates, Commission staff also released a report on The Financial Conditions of Security-Based Swap Dealers. The report presents statistics on selected measures of SBSDs’ financial conditions, including statistics on assets held, cash, financial leverage, profitability, and aggregate positions in security-based swaps, swaps, and mixed swaps.

Canadian headline inflation fell:

Canada’s annual inflation rate fell to 1.8 per cent in February, after prices in the same period a year ago had risen sharply when the government’s sales-tax relief ended, Statistics Canada said on Monday. Excluding the effect of indirect taxes, the Consumer Price Index rose 1.9 per cent year-over-year in February, it said.

The inflation data for March will be the final month affected by the base-year effect of the sales tax break. But rising crude oil prices as a result of the Iran war are likely to change inflation expectations.
…
Grocery prices rose 4.1 per cent in February after a 4.8-per-cent rise observed in January, and the statistics agency said they have risen by 30 per cent in the last five years. Gasoline prices decelerated by 14.2 per cent in February due to the continued impact of the removal of a carbon tax on the fuel, which reduced the year-over-year price. This impact will stay until April, Statscan said.

Shelter costs – the largest component of the CPI basket with a weight of roughly 29 per cent – rose at a slower pace of 1.5 per cent in February as mortgage costs continued to ease. Rent costs rose 3.9 per cent on an annual basis in February.
…
The CPI-median, the centermost component of the CPI basket, was 2.3 per cent, while CPI-trim, which excludes the most extreme price changes, was also at 2.3 per cent.

The subpoenas served on Powell have been quashed:

A federal judge has quashed subpoenas the Justice Department had issued against Federal Reserve Chair Jerome Powell, according to court documents unsealed Friday.

The ruling is a major blow to President Donald Trump, who has repeatedly criticized Powell for not lowering interest rates and urged the Justice Department to investigate the outgoing chair.

US District Judge James “Jeb” Boasberg wrote in the new opinion that a “mountain of evidence suggests that the Government served these subpoenas on the Board to pressure its Chair into voting for lower interest rates or resigning.”

“On the other side of the scale, the Government has produced essentially zero evidence to suspect Chair Powell of a crime; indeed, its justifications are so thin and unsubstantiated that the Court can only conclude that they are pretextual,” Boasberg said.
…
Powell had stayed mostly mum in the face of Trump’s attacks, but just a few days after he was served with a subpoena in early January, the Fed chief released a remarkable video calling out the investigation as an affront to the Fed’s independence.

Powell’s response was discussed 2026-1-12 and the international response on 2026-1-13.

Meanwhile, the US 25Q4 GDP was pretty awful:

The U.S. economy, hobbled by last fall’s 43-day government shutdown, advanced at an unexpectedly sluggish 0.7-per-cent annual rate from October through December, the Commerce Department reported Friday in a big downgrade of its initial estimate.

Growth in gross domestic product – the nation’s output of goods and services – was down sharply from 4.4 per cent in last year’s third quarter and 3.8 per cent in the second. And the fourth-quarter number was half the government’s first estimate of 1.4 per cent; economists had expected the revision to go the other way – and show stronger growth.

Federal government spending and investment, clobbered by the shutdown, plunged at a 16.7-per-cent rate, hacking 1.16 percentage points off fourth-quarter growth.

For all of 2025, GDP grew 2.1 per cent, solid but down from an initial estimate of 2.2 per cent and from 2.8 per cent in 2024 and 2.9 per cent 2023.

In the fourth quarter, consumer spending grew at a 2-per-cent clip, down from 3.5 per cent in the third quarter and the 2.4 per cent the government had initially estimated. Business investment, excluding housing, increased at a healthy 2.2-per-cent pace, likely reflecting money being poured into artificial intelligence, but the increase was down from 3.2 per cent in the third quarter and from the 3.7-per-cent advance in the Commerce department’s initial estimate.

Exports fell at a 3.3-per-cent annual rate in the fourth quarter, a bigger drop than the government first estimated.

And the Canadian jobs number was horrendous:

Canada’s economy unexpectedly shed 83,900 jobs in February, driving the unemployment rate up to 6.7 per cent and showing the extent to which trade uncertainty is continuing to weigh heavily on the country’s labour market.

The rise in unemployment was fuelled by a significant drop in full-time jobs, which plunged by 108,000 last month, Statistics Canada said Friday in a report. The number of workers in the private sector fell by 73,000, while part-time employment held steady from January.

The largest decline in jobs was seen in wholesale and retail trade, which lost 18,000 jobs last month, a decline of 0.6 per cent. This sector has been struggling for months, shedding a cumulative 52,000 positions since October. Manufacturing and construction also took a hit, with a combined 21,200 jobs lost in those industries last month.

US inflation was basically steady:

The Consumer Price Index report showed that inflation steadied at 2.4 percent in February from the same time last year, matching January’s annual increase. On a monthly basis, overall prices ticked up 0.3 percent.

“Core” inflation, which excludes volatile food and energy prices, also budged little, registering a 2.5 percent year-over-year pace. Compared to the previous month, these prices were 0.2 percent higher.

February’s report, which was released by the Bureau of Labor Statistics on Wednesday, covers the period up until the United States and Israel first struck Iran on the final day of the month.
…
In February, food prices were one of the biggest drivers of the overall increase, rising 0.4 percent over the course of the month, or 3.1 percent compared to the same time last year. Grocery prices, in particular, were up 2.4 percent, or 0.4 percent in February, while food away from home was 3.9 percent costlier on a year-over-year basis.
…
Sectors most exposed to Mr. Trump’s tariffs, such as appliances, have continued to become costlier. Prices for those goods rose 3.1 percent in February and are up 2.9 percent from a year ago. Furniture prices were flat for the month, although compared to the same time last year, are 4.2 percent higher.

With that in mind, we may review yesterday’s Survey of Consumer Expectations:

February Survey: Labor Market Expectations Decline Slightly Overall,
Inflation Expectations Tick Down at Short-Term Horizon, and Delinquency Expectations Improve

• Median inflation expectations declined by 0.1 percentage point (ppt) at the one-year-ahead horizon to reach 3.0 percent in February while holding at 3.0 percent at the three- and five-year-ahead horizons.
• Median one-year-ahead earnings growth expectations decreased in February by 0.2 ppt to 2.5 percent, just below the trailing twelve-month average of 2.6 percent. The mean probability of leaving one’s job voluntarily, or the expected quit rate, in the next twelve months decreased by 2.8 ppts to 15.9 percent, a new series low.
• The mean perceived probability of finding a job in the next three months if one’s current job was lost decreased by 1.6 ppts to 44.0 percent. However, mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 2 ppts to 39.9 percent.
• The average perceived probability of missing a minimum debt payment over the next three months decreased by 2.1 ppts to 11.6 percent, its lowest level since February 2024.

PerpetualDiscounts now yield 5.73%, equivalent to 7.45% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.03% on 2026-3-11. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed dramatically to 240bp from the 260bp reported March 4.