PrefBlog

PerpetualDiscounts now yield 5.67%, equivalent to 7.37% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.94% on 2026-06-17. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained at the 245bp reported June 17.

Canadian inflation stepped on the gas!

Canada’s annual inflation rate in May accelerated more than expected to 3.2 per cent, a 29-month high, data showed on Monday, as the impact of higher crude oil prices due to the Iran conflict continued to filter through gasoline costs.

Analysts polled by Reuters had estimated the annual inflation rate to touch 3 per cent in May, up from 2.8 per cent in April.
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Gasoline prices in May rose by 33.2 per cent on a year-over-year basis. Consumers in May shelled out more for gasoline than from its previous peak four years ago when Russia invaded Ukraine, Statscan said.

This led to an increase in the cost of transportation, which accounts for almost 18.5 per cent of the CPI basket, posting a 9-per-cent annual increase last month.
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Cost of food, which also contributes around 17 per cent of the CPI basket, rose 3.8 per cent in May from 3.5 per cent in April, Statscan said, adding that this was fuelled by an increase in prices of fresh fruits and vegetables which rose by 5.3 per cent and 9 per cent respectively in May.

The impact of higher transportation and food prices were largely offset by shelter costs, the biggest contributor to the CPI basket at close to 30 per cent. Shelter costs rose by 1.7 per cent in May following a 1.8-per-cent increase in April, data showed, especially led by a reduction in mortgage costs which shrunk by 0.2 per cent last month.
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CPI-median, the centremost component of the CPI basket, was at 2.1 per cent, while CPI-trim, which excludes the most extreme price changes, was at 2 per cent.

The day was enlivened by the closing of the GWO.PF.A Straight 5.7% issue.

The FOMC stood pat today:

The Federal Open Market Committee approved the following statement for release by a 12 – 0 vote:

The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve’s dual mandate. The Committee reaffirmed its policy of maintaining ample reserves in the banking system.

Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.

Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.

“The committee will deliver price stability”? That sounds more like a Republican talking point than a central bank pronouncement … well, we’ll see. And there’s a lot less economic substance in this release than I like to see. Nevertheless, it carried unanimously, as was so eagerly trumpetted in the first line, which surprises me. Maybe Trump-toadyism has taken over. Maybe everybody just wants to be nice to Warsh at his first meeting. I certainly don’t know.

But the opacity continued into the press conference:

But as determined as Warsh said the Fed was to modernizing and fixing the economy’s problems, Warsh was noticeably less willing to provide detailed answers about the Fed’s decision-making process or thoughts on broader economic topics than Powell. Warsh often referred back to the Fed’s brief statement about the economy rather than expounding upon it.

In an answer that Warsh acknowledged was purposefully “curt,” he said: “I’ve got nothing more to say than the statement itself.” In another, he noted, “I can’t do much better than the committee just did. So let me restate it.”

The Fed’s economic projections still include the dot-plot:

Ben Werschkul comments:

The Federal Reserve’s latest “dot plot,” outlining policymakers’ interest rate projections, revealed a sharp shift in central bankers’ expectations.

Not only are rate cuts almost surely off the table for the rest of the year, but there is also a sharply higher chance of a hike before the end of 2026.

Nine policymakers who participated in the exercise projected at least one hike, with six even suggesting multiple hikes could be in the offing.
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The median forecast for interest rates at the end of 2027 remains unchanged at the current rate of 3.50% to 3.75%.

The projection is a sharp change from the outlook released in March, which had maintained a median forecast for one rate cut in 2026 and two in total by the end of 2027.

The equity markets responded poorly:

Major North American stock indexes immediately turned lower after the U.S. Federal Reserve kept interest rates unchanged as investors interpreted the accompanying details as being hawkish.

Short-term bonds yields spiked, as did the U.S. dollar against major currencies. The Canadian dollar traded at its lowest since 2025, at just above the 71 cents US level, down about a third of a cent for the session.

The U.S. two-year bond yield rocketed 9 basis points higher, a large one-day move. Short-term ​U.S. interest-rate ‌futures are now pricing in a ⁠bigger ​chance that the Federal Reserve will deliver ​a ‌rate hike by September than opt to ‌keep ​rates where they ‌are.

The ​shift in market-based ⁠rate-path expectations ⁠comes after the ​Fed said it would leave the policy rate in its ⁠current 3.50%-3.75% range at this time, but a ⁠near-majority of policymakers ​penciled a ⁠rate hike by the ‌end of 2026 ​to combat higher inflation.

PerpetualDiscounts now yield 5.66%, equivalent to 7.36% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.89% on 2026-06-17. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened to 245bp from the 235bp reported June 10.