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Interest rates have been on the rise since the end of the first quarter, particularly in the long-end of the curve. From March 31st until time of writing, Canadian long bonds have risen 66 basis points (bps) while their American counterparts are up 44 bps, translating into price declines of 13% and 7%, respectively.

To illustrate the turmoil that has characterized the last three weeks, below we plot the daily movements in high yield credit spreads dating back to 1997.

In the fourth quarter, the Bank of Canada (BOC) implemented two consecutive 50 basis points (bps) rate cuts. The overnight rate in Canada, which started 2024 at 5%, now sits at 3% following the BOC’s latest cut on January 29th. The 200 bps cumulative decline over the past 8 months is double the speed of U.S. easing, leaving both our overnight rate and our currency much lower.

Another quarter has passed, and we continue to watch corporate credit spreads “Come On In”. Despite significant volatility over the August long-weekend, high yield spreads ended the quarter tighter than where they began. The “Spread to Worst” on the ICE BofA U.S. High Yield Index touched 313 basis points (bps) on October 21st, a level not seen since the eve of the Great Financial Crisis. We can see from the red in the chart below that we are indeed in rare territory.