Markets are in risk off mode with most equity markets pointing lower and bond yields bull flattening in most major markets.

JULY 30,2019


Markets are in risk off mode with most equity markets pointing lower and bond yields bull flattening in most major markets. The BoJ decision came without much drama, the Bank left its policy stance as is and pledged to act if needed. The next 24 hours we get a fair bit of high-profile data: US consumer confidence at 8:30am, Chinese PMI at 9pm, Unemployment numbers Europe, GDP and CPI overnight.

The News Canada

  • GM: “How a Fed interest-rate cut is highlighting the Bank of Canada’s trade worries, TFSA withdrawal tips and can Canadian government bonds have a negative yield?” ( // Scott Barlow: “Since the financial crisis ended, the average difference in yield between the Canadian and U.S. 10-year bond has been 29 basis points, so we can expect that a zero-per-cent Treasury yield would see domestic bonds yielding between minus 0.3 per cent and positive 0.3 per cent.”

The News International

  • JT-BN: “BOJ stands pat and trims inflation outlook ahead of Fed rate cut” ( // “The Bank of Japan on Tuesday kept its monetary policy unchanged while trimming its inflation forecasts, taking a wait-and-see stance ahead of an expected interest rate cut from the Federal Reserve. The BOJ maintained the settings on its yield curve-control program and asset purchases, it said, a result expected by most economists in a Bloomberg survey.”

  • WSJ: “Federal Borrowing Soars as Deficit Fear Fades” ( Kate Davidson: “The Treasury Department said Monday it expects to issue $814 billion in net marketable debt in the second half of this calendar year, bringing total debt issuance to $1.23 trillion in 2019. That would represent a slight decline from borrowing in 2018, when the Treasury issued $1.34 trillion in debt—more than twice as much as the $546 billion it issued in 2017.”

  • WSJ: WSJ: “Capital One Reports Data Breach Affecting 100 Million Customers, Applicants” ( // Nicole Hong, Liz Hoffman and AnnaMaria Andriotis: “Capital One Financial Corp. , the fifth-largest U.S. credit-card issuer, said Monday that a hacker accessed the personal information of approximately 106 million card customers and applicants, one of the largest-ever data breaches of a large bank. Paige A. Thompson, 33 years old, was arrested in connection with the hack Monday by federal agents in Seattle, officials said. Ms. Thompson is accused of breaking through a Capital One firewall to access customer data that the bank had stored on Inc. ’s cloud service, according to a federal criminal complaint and people familiar with the matter.”

  • WSJ: “Mortgage Rates Were Falling Before Fed Signaled Rate Cut” ( Paul Kiernan: “Mortgage rates have fallen recently to the lowest levels since late 2016, tracking a broader slide in U.S. Treasury yields. The average rate on a 30-year, fixed-rate mortgage was 3.75% last week, down from 4.94% in November, according to Freddie Mac. “The most significant impact of an expected Fed rate cut is already upon us,” said Greg McBride, chief financial analyst at, referring to the drop in mortgage rates.”

  • FT: “US-China trade talks resume with low expectations of breakthrough” ( // Lucy Hornby and James Politi: “USChina trade talks resume on Tuesday in Shanghai amid low expectations for a breakthrough to end the year-long spat between the world’s two largest economic powers. Optimism has been dented since then. Mr Trump warned last week that there might be no deal before the next US presidential elections in November 2020.”

  • FT: “Hedge fund Element Capital to raise performance fees to 40%” ( // Robin Wigglesworth, Lindsay Fortado: “But by the end of this year, the investment group will raise the levy on any profits it makes to 40 per cent, according to a letter to investors sent out on Monday evening — higher even than some of the best-known funds in the industry — although it will trim its management fee to 2 per cent. Element also plans to reduce the size of its fund by 20 per cent by the end of 2019. If redemptions after the fee increase prove smaller than that target, it will return a pro rata slice of investors’ capital.*”


Thoughts & Trades

A new Canada 10yr bond was recently issued, the 1.25% 2030, and we believe it has value. First we look at the rolls leading up to the 2030: • Can27-28: +0.9bp • Can28-29: +1.1bp • Can29-30: +2.9bps The pick from 2029 to 2030 is clearly higher than the rolls before it, and presents the first reasons to buy some 2030 bonds. The second reason comes from the behavior of the 10yr barbell in the last year, the 2027-28-29. From the following graph, the highest level of the barbell was 2bps, with a low of -0.5bps and an average of 0.35bps. The new 10yr barbell (2028-29-30) is now trading at 1.85bp. This is near the high of last year’s 10yr barbell. It would make sense to see this trade eventually lower. Thus, Canada 2039 are cheap and should be bought.

2019 Casgrain & Cie. All Rights Reserved

2019 Casgrain & Cie. All Rights Reserved