Markets were negative on Tuesday with the S&P 500 down 0.2% and Toronto down 1.3% even though West Texas Intermediate oil is hanging in at close to $92 U.S. dollars.
Canada’s August inflation number came in a bit hotter than expected and this caused the 5 year government of Canada yield to spike up to 4.22% from about 4.05%. This is according to Trading Economics dot com. This appears to be a new peak the highest since 2007.
This is generally negative (like an increase in a gravitational force) for stocks and definitely for fixed income. It could lead to mortgage rate increases. It’s directionally negative for the perpetual preferred shares. It could be positive for any rate reset preferred shares that will reset relatively soon. On our list we have the CWB rate resets coming up for reset this coming Spring. The Enbridge rate reset preferred on out list does not reset until December 2024 and it’s anyone’s guess what the 5 year bond yield might be by then – expectations are generally that it will be lower.
The Canada five year bond yield will likely move in one direction or the other tomorrow depending what the Fed does (expect no move) and says (expect them to say we might not be done raising yet).