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Central Banks Remain Central - Views from the North

FICC Podcasts June 17, 2021
FICC Podcasts June 17, 2021


This week, Jean-Michel Beaulieu, part of the Montreal-based fixed income sales team, and Francois Leclerc, one of our provincial bond traders, join me to share their insights on the state of the provincial bond market, broader macro themes, the impact of the FOMC on Canada, and, of course, their favourite trade ideas.

As always, all feedback welcome.


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About Views from the North

BMO’s Canadian Rates Strategist, Ben Reitzes hosts roundtable discussions offering perspectives from strategy, sales and trading on the Canadian rates market and the macroeconomy. 

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Ben Reitzes:

Welcome to Views From The North, a Canadian rates and macro podcast. This week, I'm joined by Jean-Michel Beaulieu, part of the Montreal-based Fixed Income Sales Team, and Francois Leclerc, one of our provincial bond traders. This week's episode is titled Central Banks Remain Central.

Ben Reitzes:

I'm Ben Reitzes and welcome to Views From The North. Each episode, I will be joined by members of BMO's FICC Sales and Trading Desk to bring you perspectives on the Canadian rates market and the macro economy. We strive to keep this show as interactive as possible by responding directly to questions submitted by our listeners and clients. We value your feedback, so please don't hesitate to reach out with any topics you'd like to hear about. I can be found on Bloomberg or via email at benjamin.reitzes@bmo.com. That's Benjamin dot R-E-I-T-Z-E-S @ B-M-O.com. Your input is valued and greatly appreciated.

Speaker 2:

The views expressed here are those of the participants and not those of BMO Capital Markets, its affiliates or subsidiaries.

Ben Reitzes:

I'd like to welcome you back to the show, gentlemen.

Jean-Michel Beaulieu:

Thanks for having us, bud.

Francois Leclerc:

Yeah, thanks for having us, Ben.

Ben Reitzes:

You're very welcome. You last joined me in March when rates were on the rise. The peak was pretty much there. We saw another peak in April, but it wasn't far from there. That upward momentum didn't last much longer though. Since then, we've rallied despite some persistently hot inflation prints through most of the world. J.M., in that episode, you had turned less bearish on rates in the short term, and you suggested selling out-of-the-money pay options for US 10s. Great call there, that would have paid off nicely. US 10-year yields are down about 25 basis points from the March peak, or April peak, whenever. Late March, early April.

Ben Reitzes:

Last week's moves in the market, I think caught a lot of people's attention. They appeared to be driven largely by short covering. I'm a fundamental macro guy and I really didn't see any fundamental macro changes. So, that's what makes the most amount of sense. But tacticals were impacted as well there. Canada 10-year yields broke below the range they traded over the past few months. That opened up the potential for further strength, but it's Wednesday, almost five o'clock. And we just got the Fed. We were thrown a bit of a curve ball today by the Fed. They sounded a little more hawkish I think than the market was looking for. Clearly, if you look at the movement in yields today. Jim, what's your market view here? How has things changed? Maybe you're a little more bearish now the yields have come back or what's your market view and what has the Fed announcement today changed?

Jean-Michel Beaulieu:

Well, for sure today was, as you said, a curve ball from the Fed. What I'm getting back from that Fed meeting is that this famous average inflation targeting framework got threw in the garbage or something. Because the dots moved up two notches for 2023, while inflation expectation remain flat. And Jay Powell and the presser didn't say anything relevant as to why the dots moved higher, while inflation remain anchored. And that means to me that this average inflation targeting framework was maybe just a joke or maybe they don't even believe in it themselves. Or some of the guys.

Ben Reitzes:

Let me stop you there for a second. So two things. One, he did play down the dots a lot.

Jean-Michel Beaulieu:

He did.

Ben Reitzes:

He does every time.

Jean-Michel Beaulieu:

Exactly. As we know he would.

Ben Reitzes:

So one day maybe they'll mean something, but he likes to say they don't. The other is on inflation. They push up their 2021 forecast a ton. So maybe from their perspective they have headline PCE at 3.4% this year, and they moved the next two years up a bit, a tick. So it's still around 2%, but maybe the 1.4% above 2% this year. So 3.4 this year and core PCE being at 3%. So a percentage point above where they targeted in the long run, maybe that's enough for them. Maybe that is sufficient to hit their longer-term average.

Jean-Michel Beaulieu:

Maybe it is. For sure there's some pressure building on in the system and he told it quite clearly that inflation might not be transitory, as they love to say. And so I get it that they're open to maybe see rate moves a little bit quicker than they thought. And so clearly they've opened up potential talk on paper, maybe in July or at least at Jackson Hole. And so it changed a bit my perspective on rates. Although, what I want to say is that I think we are still reaching peak reflation at this point. And we're at peak inflation growth, we'll be peak growth in the economy.

Jean-Michel Beaulieu:

And those rate of growth should decelerate until the end of the year. And maybe I would even say that we could see negative print actually next spring because of the base effect versus this year. Which would be the reverse of what we saw this year versus last year. And so considering we're peak reflation, considering everybody's still short rates, considering that commodities are starting to falling off. You look at copper, you look at lumber, you look at what China's trying to do. China's is really trying to put the brakes here on commodities.

Jean-Michel Beaulieu:

Their National Food and Strategy Reserves announced that they will give away some metals from their stockpiles, which is to me is a big, big thing. And so they're really trying to slow down that craziness in commodities. And the other thing is that shipment bottleneck in prices are just crazy right now. Shipping freight went through a parabolic rise and you can look at this as a tax. It's another tax on import from China. And you can be sure, absolutely certain, that China will address that fairly quickly. They'll make sure that shipments, and containers, and ports, and boats will see the prices go down because they can't afford that people start onshoring their manufacturing, which is clearly the risk here.

Jean-Michel Beaulieu:

And so the point is clearly we had a big move up to March when, again, the inflation print was released. Yield came back today with taper risk going higher. Clearly the rates sold off, but I still think you can sell straddle and manage to get away with the premium because I don't see rates going much higher for now. Now the trade, that should win. And if you start talk about taper, the most dominant trade by far should be to sell real yields. And so you see real yield today got absolutely annihilated, just crushed.

Jean-Michel Beaulieu:

And clearly this is the most correlated trade to taper. Although we don't have a huge sample of QE and taper, but definitely that's what we saw in 2013. Real yield just got hammered big time, and it makes sense. So I would say my view moved a bit into being a bit more bearish on real yield rather than nominals.

Ben Reitzes:

So you think though that inflation expectations come off enough, then we just stay range-bound?

Jean-Michel Beaulieu:

I think inflation expectation are reasonably priced. That's my thing. And if they start to talk about taper, it could actually come down with commodity prices going down. And so that's why being short nominals is probably not best trade. But again, real yield because as we know, the Fed bought a huge amount of real yields, huge amount of tips. So if they start to fade this bankrupt program, they going to take it on the chin.

Ben Reitzes:

All right. Francois, what's your view on the market here?

Francois Leclerc:

I would agree with J.M. a bit here. Maybe one different I would point out too is the month over month increase in CPI that we've seen over the last few months. It seems to be pretty sturdy to me. All the employment data that we have seen as well seems very strong, even if we were just sub 600K in the U.S. for the last print, it's still solid gains. So I think we might get something. People are pointing towards stagflation. Maybe we're not there yet to discuss that, but I think we can get into an environment where, at some point, the economy has just reopened and inflation continues to print, but we don't really go anywhere.

Francois Leclerc:

So maybe we do stay range-bound. I think going into Jackson Hole, we might get another pullback. You see the Fed today and we're like, "oh my God. Look at fives, look at." But we're still way off levels we've seen in early March. So I think internationals especially are going to look at the two, three-year part of the curve and could continue to be buyers at these levels for the time being.

Ben Reitzes:

All right. Fair enough. Why don't we extend this a little bit to Canada. The Bank of Canada was last week. They were also, I think, at least they stayed on the hawkish side. They stayed on the upbeat side, especially relative to other global central banks. It looks as though tapering is well on track for the Bank of Canada. That to do it again, taper one more time in July, bring their purchases down as much as another billion or so, bringing that down to two billion. And then, the bank's a little bit ahead of the Fed at this point, but I think with today's the change in dots, it suggests maybe the Fed's not as far behind the bank as it seemed. We got as many high CPI prints as we have in the U.S. We've had the same, if not more in Canada, five prints in a row of 0.5 or better.

Ben Reitzes:

So that's a little more persistent, I guess, than what we've seen in the U.S. Which has been just more recent, but more elevated. That being said, inflation from two years ago, it's still just 1.6%. I think that skips over that pandemic period. So no real need for alarm from the Bank of Canada's perspective, but they seem to be taking the growth numbers I guess a little bit more at face value. And the outlook that things are looking better, as we all get vaccinated, things might open back up, growth picks back up again. And they want to maybe not get too far ahead of the curve, but at least be in a good position to be raising rates, I think, when the economy is fully healed.

Ben Reitzes:

Whereas for the Fed, it seemed at least until today that they would be as patient as you could possibly imagine. How are you guys looking at Canada right now? Is it just the same as the U.S., same trade and not much to look at? Is Canada still too aggressively priced relative to the Fed? Or maybe things look a little more reasonable now after you've seen, especially in the five-year sector, a notable back-up in fives and Canada outperforming nicely again today? Why don't we start with Francois there, and then we'll get to Jean.

Francois Leclerc:

I favored being short fives in the U.S., it's a position I had for a while. Obviously you saw the price action, the short covering, and the rally going into today. I think the move today clearly reflects more fundamentals, but you could see that the short base was still very large out there. And even after last week's data, the rally was pretty shocking. Despite the direction of fundamentals in this. I continue to favor being short twos, fives on the curve. I would say a bit more indifferent between Canada and U.S. as we go further out in 10s, but I think structurally you stay short fives. Then if you look at credit, I don't think rate sell off necessarily support credit spreads yet. As you see today, IG is out, yields are higher.

Francois Leclerc:

It's all one way directional, pretty much the taper trade. So I think it'll move in the same way. And especially in the long end. If I recall right, our last podcast was called Go Long and Go Home, I think. And I think we could have been more accurate on the outcome as to what longs did, long and Canada long and provies has only rallied since then. I wanted to buy TLT in my PA and never got to the level, it only rallied from then. So I think that might be a trade that starts to unwind as we move into the summer months.

Ben Reitzes:

You started that comment by saying fundamentals. You talked about fundamentals and how central banks, the Fed was reminding people of fundamentals. I think that's pretty key at this point. It's easy to forget where fundamentals are. That's pretty much all I do for a living. So, I stare at those all day, more so than most people, and the fundamentals are still really good. And I get that we've had probably peak growth rates because when you're reopening, you get a massive surge in growth, which is in no way sustainable. So it's obviously, you're going to see growth pulling back from those super high levels, but the fundamentals are still there for rates to at least move higher, I think, over time. And I think that's something that can be overlooked at times.

Ben Reitzes:

Positioning, I get it, takes on a bigger role a lot of the time, and it has for the past little while, but don't forget the growth is still really strong. There's still plenty of fiscal stimulus coming. It's not done yet. Monetary stimulus is still super strong as well. There's a lot of it. There's still tons of money being printed. So growth is going to slow, but not a whole lot. We're still going to be historically strong from that perspective. Jean, what are your thoughts on Canada right now?

Jean-Michel Beaulieu:

As you know, I've recommended not long ago, maybe two weeks ago to receive the four-year point in Canada's. Which was a similar trade to selling straddle, if you want, because I thought French remain range-bound. The four-year slump, which rolled and carried about 11 beats per quarter was actually a decent bet. And just turned that premium, if you want, by being long and make it roll down the curve. I do still think the same. With today's move, the trade is back to where it was when I recommended it. So it's basically back to flat. So we'll see the next few days or week if I was wrong on it or not.

Jean-Michel Beaulieu:

I do agree that there are more risks to it after this Fed meeting, for sure. But I'd say, first of all, I'm a bit surprised that Canada actually almost move one-to-one with U.S. flights. And at some point, it was even underperforming in two years versus the U.S. after the Fed. So I thought U.S. should clearly underperform in that part of the curve, which as we speak, Canada is about outperforming two beats two and a half beat, maybe. So it's no big deal.

Jean-Michel Beaulieu:

So I'm a bit surprised by how far we went in fives, looking at the other recommendation, I met recently was in Essex to buy USD CAD. So being short Canadian dollar versus long U.S., that trade did actually really well today. And I think it might be a way to play actually not market. Where USD CAD clearly sold off way too fast. And I think USD, if the Fed is starting to talk about tapering and raising rates, and again, if commodities are fairly priced and maybe look to the downside, USD CAD is a really nice bear to own. Where US should do well and CAD should actually underperform a bit because of the exposure to commodities. I would say that Canada was and still is fairly priced in my mind.

Jean-Michel Beaulieu:

So I'm not recommending a bid too big to be really outright long duration, except for that four year part because of the roll down. But I don't see a big mispricing right now in Canada, in my mind. The mispricing was in the U.S., at the U.S. front end. And we're dialing back a bit on it today.

Ben Reitzes:

Totally agreed. I think that the U.S. was one of the things looked off, I guess. And Canada's probably where things close to it, more or less should be. Good point on the dollar. It got absolutely annihilated today. And if anything, that actually makes the Bank of Canada a little more likely to continue their tapering in July, just because if the currency is not a concern for them, then why not? All systems go for them to continue on their current path and especially if the Fed's in line. All the more reason for them to continue just slowly but surely taking the stimulus off the table.

Jean-Michel Beaulieu:

And I'd add if you, if I can, that although I'm a bit more bearish on commodities, I still think oil should do relatively well, it should hold up pretty well. I don't see oil really coming back with the current fundamentals. So that that should help Canada and the Bank of Canada in their plan.

Ben Reitzes:

Definitely. I got a question for you. You talked about China and metals and them releasing some of their stores. Isn't that just a short term pressure valve? It doesn't change any of the demand dynamics. I guess what happens is if the increase in demand really is temporary, and you're just getting a quick surge and you're satisfying that demand with some inventory then great, but it doesn't solve any long-term issues. If demand stays strong, it doesn't change the supply picture from a longer-term perspective.

Jean-Michel Beaulieu:

So, 100% agree. We had multiple conversation off of this call. And it's where we, I wouldn't say we disagree, but it's all about the question of, is inflation transitory or structural? And in my mind, we've written up this trade pretty well. It's been a successful trade off to again, the March print and CPI. And at this point we're reasonably well-priced and I just don't see how you can figure out in the next few months whether inflation will be transitory or not. I think we'll have this information probably later in the year or beginning of 2022. I'd say in the U.S., we definitely have to wait for the federal support for unemployment benefits to come off, which should happen in September.

Jean-Michel Beaulieu:

Actually, I think even some states are pulling it off in June and July. So we should see state by state the impact on an unemployment, which should actually increase a lot of the payroll. Non-farm payroll should go in the sky. When, as you know, the benefits will come down. But at this point, it's reasonably well-priced with the information we have. I think we can come off a bit from those highs. But I agree with you. It might be that we are in a new structural environment and that prices feeds on itself, as we know them.

Ben Reitzes:

So I don't know if I go there, I'm not so. As much as I think there's going to be a little bit more inflation, I'm not convinced it's going to be that persistent at the end of the day. What I point out is that we had super low inflation for 10 years, and maybe that was the abnormal. Maybe that was the point, we're getting over a financial crisis. You still had integration of, we try to enter the global economy. You still have a lot of pressures, and aging demographics impact things as well. And that one hasn't gone away at all. But globalization has slowed, the financial crisis impact is gone, over.

Ben Reitzes:

And we have 10-year yield at the bottom of the range in the U.S. for where they were in the prior decade. So we're at the bottom for the 2012, 2016, 2019. We're at the bottom of that range right now, if you're going to call it more normal-ish inflation. So just not persistently sub 2%, but I'd say somewhere in a little bit, below two to even arguably up to high twos or even 3%. And that ends up being the range. That's more how I view things and why I just still longer-term, near term, I think it's tough because the summer tends to be tough. But the longer term, I just don't see how rates don't at least drift higher over the next few years.

Francois Leclerc:

If I can step in Ben. To me, it becomes more of the society's problem. If you just think about what the pandemic has done to the gap in between different classes in society, and who's been affected the most, and the wealth gap that has been just increasing and increasing over the last decade in the U.S. and in Canada. If inflation picks up and we maintain a higher sustainable level of inflation, I think it's just going to increase that gap. And we see inflation has been low, but it's been skewed towards real estate, financial assets, which are all held by wealthier people, higher class of society. So it's just helps increase that gap. And I am not sure the central banks nor the government will want to keep pushing down that path.

Ben Reitzes:

They need to deal with debt though. So inflation does whittle away your debt burden when you have trillions and trillions in government debt. And on that note, why don't we discuss the provincial bond market a little bit. The provinces still need to issue pretty sizable amounts of debt. Not quite at the pace and the size we had last year, because things are better. And as the economy recovers, revenues recover. They don't quite have the same expenses, at least not COVID-related that they did last year. And so that helps the fiscal balance as well.

Ben Reitzes:

So things are definitely moving in the right direction, but issuance is still pretty high. The Bank of Canada has now stepped out of the way. How is the provincial market behaving at the moment? Was there any impact on the Fed today and where do you see things going forward, Francois?

Francois Leclerc:

Funny enough, the market's behaving so far this year, as I thought it would have behaved early on in last April. What I mean by that is that benchmarks are really keeping up on the curve and you see that new issue deals are harder to bring. You look at, for example, Ontario 31 30 box, it has steepened. You now get a credit pick, as opposed to, before in the market, you would actually either be flat credit or give credit to move into the more liquid benchmark. And you see the same thing further out the curve. You look at Ontario 51 50 roll, that has steepened, now roughly positive a half, same thing in Quebec.

Francois Leclerc:

So a trend where we're seeing backdates outperform the new issue bonds because they need to be tapped so often. Now that being said, it surprises me a bit in the long end that it's happening now, because there was no PBPP last year, there was nothing market or sector-specific happening. Yes, we had seen lots of selling of backdated longs in April and throughout the year, but it really reverted and erased back quickly. And now we're actually seeing all the backdates perform, which they have a lot, but then that brought some real money, extending out the curve to match that in the recent weeks. So I'd say that's a big factor.

Francois Leclerc:

You say the PBPP has ended, but you just look at five-year pro V's and they're as rich as they've ever been versus Canada's, versus CMB. That to me is a trade out there and we've seen some accounts do it, but the credit value in the five-year sector for pro V is very little. Some bonds even trade flat to CMBs. And if you just extend and go out into tens with the asset swap curve that's inverted, the credit curve that is steep, you really get a nice pickup. It's a straight line up as I've seen it in the provincial space.

Francois Leclerc:

So I think the five-year sector is very, very rich, but it's there because there's been so much liquidity, so much cash in this market. However, you have to protect for worse days and improve your credit when you can at these spots. Further out the curve, I'd say what it's done, it's the long end is really, really offered. We've said a few times this year that we established new ranges in the Ontario 10 30 credit box, but recently it just keeps pushing steeper and steeper. June two coupon payment brought a bit to it. We went just north of 16, but we're quickly right back to 19 and a half, 20.

Francois Leclerc:

We've seen some people cover some shorts. We've seen some fast money, take some stabs at it and put on flatteners, but it just keeps pushing steeper. And just after today and the move flatter in 10s, 30s, post-Fed, we steepen back another beat a steeper on that box. So you just look at, in May, we had almost 3% yield in long Ontarios, we're well below that now sitting inside of two and three quarters. So not as appealing, especially if you have the outlook of higher sustained inflation in your mind.

Ben Reitzes:

Cool. J.M., what are your clients telling you about the provincial market at the moment?

Jean-Michel Beaulieu:

Difficult to add after Francois. I agree with everything he said, for sure. As for 10s box curve, I was in the same camp as him thinking that the range has gone. It's actually went wider and wider with time if you look at the past 10, 12 years. It was in a five to 10 beat range. And then it's now in this 15, 16 to 20 beat range. I love to play it from the short side when we get to flats and take, I think, profit when it gets back to the wide. So for people that were short or long end, I definitely think it's a nice entry point to cover some up. I don't know if you get long right now, I have to say at this point. The other thing I would add, Francois, is Ontario versus the outer peripherals.

Francois Leclerc:

I hoped you were going to touch that.

Jean-Michel Beaulieu:

I was definitely dead wrong in the beginning of the year. I thought with the end of the PBPP, peripheral would widen a bit because I thought this program was implying support for the peripherals, and I was definitely wrong. So peripherals continue to outperform basically because Ontario keeps issuing and issuing more. And at this point, it's quite interesting to figure out, what do you do with your BCs and Alberta and Mani, and what have you. Alberta is right around 10 beats in longs now with 22 beats a few months ago. And as you know, plus the 2014 oil crash, the range was minus five to plus 35-ish or so, I think, in long fossil or close to, I think.

Ben Reitzes:

Exactly.

Jean-Michel Beaulieu:

So at 10 beats, we're definitely going back to the low-end of the range. BCs right now are minus seven and a half. The range was zero to minus, let's say, 16 over the past 20 years. So middle of the range there. The big question is with rates still low, do you continue to add on your BC? You continue to add on any other peripherals? The trend seems to be your friend right now. And again, Ontario is definitely showing a lot of paper. And we see it with Quebec. Quebec is actually making new tight levels at minus four half. It's never been there. And so this is completely new territory for Quebec. And so I think that's a big theme right now. I would tend to think that there's still momentum in there. And if risk asset continue to do well, we should see peripherals continue to outperform since we're not that tight on the range historically.

Francois Leclerc:

Exactly. A good point. And I think I was wrong too on the last call, when we discussed the end of PBPP, we thought it was very supportive for peripherals and the front end. But the bid for peripheral has been across the curve. Initially, I think it was really more of a carry trade in a low vol, tight spread environment where doesn't seem to be bunch of risk of spreads blowing off. So, that really performed well. Here what I like, I think all the names that are trading way through Ontario and it's a harder carry trade. People won't necessarily like fast money. Won't put it on necessarily for quick play because it's expensive and it tends to not work that fast.

Francois Leclerc:

It mostly works over time, but I still like Alberta here. I think that's one of the plays I really like. With oil back above 70 bucks. And as Jean mentioned, Ontario keeps issuing paper. Alberta has much less funding needs and we're still off the levels where we've been pre-pandemic. So I think Alberta definitely has room to perform and outperform from here, just on the fact of issuance pattern that's left there remaining in the year. Probably BC too, I would say. Cheap towards minus seven in the long end. But as I said, it's a negative carry trade. So people don't tend to go overweigh BC too often.

Ben Reitzes:

I'm going to take a little bit of the other side there. Probably not near-term because I agree with both of you guys. The trend is your friend and diverse does well, it's hard to say otherwise. But if you just look at the fundamentals, the bar for Ontario to outperform is pretty darn low. They've set themselves up a pretty easy hurdle, so. And the strong U.S. economy, all those, there's a lot of fundamentals that suggest that Ontario should do a lot better going forward. I guess we'll see what the government wants to do with all the money that comes in. That's probably a big question as any.

Ben Reitzes:

But I think near term, I would agree with you guys. But as we work through the year, if this continues, and I don't think all that much further necessarily, I think that it will be time to go the other way. And just the fiscal differential won't be quite as big as what's being reflected in spreads. And might be time to look at Ontario a little bit closer from the long perspective.

Jean-Michel Beaulieu:

I agree with you, Ben, actually. The point is, as Francois said, a lot of peripherals are now going through Ontario. So you're losing carry, as you said. Accommodating the hurdle for Ontario to perform is much lower. And so, I do think actually that reversing this trade and selling peripherals going back in Ontario could be at some point one of the bigger trade in the whole provincial space. You could do more alpha by trading those paper around then direction-wise, for the whole pro V industry, pro V market. So I agree to you at some point, you need to reverse that trade and take profit and just go much longer Ontario.

Ben Reitzes:

I'll bring you guys on when that time comes, how about that?

Francois Leclerc:

All right.

Ben Reitzes:

We're a little bit long here. So why don't we wrap up? What do you, favorite trade, one each, what do you got?

Jean-Michel Beaulieu:

So I'd say a short real yields probably more in the U.S. because it's more liquid. I still like USD CAD reversal here to the maybe one 24, one 25 thing. Risk-wise, I'm pretty neutral. And again, as you know, nominal rates, I am neutral. So I would put those two trades right now.

Francois Leclerc:

I'll keep it around something I mentioned a bit earlier, but selling any pro V's in the four to five-year sector to extend into something that trades off, let's say 27s, 28s, 29s. Steep credit curve, very steep asset swap curve. And all those Canada bonds are very rich. You have a fives, 10s segment that's very flat. If you just use CEP 26s is instead of current fives, you notice how much flatter the curve actually is. And then Government of Canada is going to keep introducing new bonds. March 27, for example. And it's just going to make those June series in between fives and 10s very expensive.

Francois Leclerc:

So think you want to own pro V's that trade-off that will be long Pro V's like Ontario 27s and spread that should perform well. If you're short the underlying Ontario June 20ths or Canada June 27ths against that. So any type of extension, you can shape it that way, but selling the rich four to five-year, that's been squeezed out and doesn't have any juice left and move further out the curve.

Ben Reitzes:

All right. Cool. Well, thank you, gentlemen. Appreciate you joining me again. And when you tell me that the pro V sectors is going to turn and that the peripherals are going to turn, but we'll have you back on. Have a good night, guys.

Jean-Michel Beaulieu:

You too, Ben.

Francois Leclerc:

Thanks Ben.

Jean-Michel Beaulieu:

Bye.

Ben Reitzes:

Thanks for listening to Views from the North. A Canadian rates and macro podcast. I hope you'll join me again for another episode.

Speaker 2:

This podcast has been prepared with the assistance of employees of Bank of Montreal, BMO Nesbitt Burns Incorporated, and BMO Capital Markets Corporation. Together, BMO, who are involved in fixed income and foreign exchange sales and marketing efforts. Accordingly, it should be considered to be a product of the fixed income and foreign exchange businesses generally, and not a research report that reflects the views of disinterested research analysts. Notwithstanding the foregoing, this podcast should not be construed as an offer or the solicitation of an offer to sell, or to buy, or subscribe for any particular product or services. Including without limitation, any commodities, securities, or other financial instruments.

Speaker 2:

We are not soliciting any specific action based on this podcast. It is for the general information of our clients. It does not constitute a recommendation or suggestion that the investment strategy referenced herein may be suitable for you. It does not take into account the particular investment objectives, financial conditions, or needs of individual clients. Nothing in this podcast constitutes investment, legal, accounting, or tax advice, or representation that any investment or strategy is suitable or appropriate to your unique circumstances, or otherwise constitutes an opinion or a recommendation to you.

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BMO is not providing advice regarding the value or advisability of trading in commodity interests, including futures, contracts, and commodity options or any other activity which would cause BMO or any of its affiliates to be considered a commodity trading advisor under the U.S. Commodity Exchange Act. BMO is not undertaking to act as a swap advisor to you, or in your best interests in you. To the extent applicable, you'll rely solely on advice from your qualified, independent representative in making hedging or trading decisions. This podcast is not to be relied upon in substitution for the exercise of independent judgment.

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You should conduct your own independent analysis of the matters referred to herein, together with your qualified independent representative if applicable. BMO assumes no responsibility for verification of the information in this podcast. No representation or warranty is made as to the accuracy or completeness of such information. And BMO accepts no liability whatsoever for any loss arising from any use of or reliance on this podcast. BMO assumes no obligation to correct or update this podcast. This podcast does not contain all information that may be required to evaluate any transaction or matter, and information may be available to BMO and or its the affiliates that is not reflected herein. BMO and its affiliates may have positions, long or short, and affect transactions or make markets, in securities mentioned herein, or provide advice or loans to or participate in the underwriting or restructuring of the obligations of issuers and companies mentioned herein. Moreover, BMO's trading desks may have acted on the basis of the information in this podcast. For further information, please go to bmocm.com/macrohorizons/legal.

Benjamin Reitzes Director, Canadian Rates & Macro Strategist

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