July 24, 2024 05:35 GMT
AU-CA 10-Year Yield Differential Slightly Above Fair Value Ahead Of BoC Policy Meeting
AUSSIE BONDS
The RBA’s official rate is currently 40bps below that of the BoC, but this differential appears set to narrow to +15 bps later today if market pricing proves accurate.
- More interestingly, looking 12 months ahead using 3-month swap rates 1-year forward (1Y3M), the market now expects the RBA’s official rate to be 76bps higher than the BoC’s. (See link)
- A simple regression of the AU-CA cash 10-year yield differential, which is currently around its highest level since last December, against the AU-CA 1Y3M spread over the past 12 months suggests that the 10-year yield differential at its fair value of +94bps.
Figure 1: AU-CA Cash 10-Year Yield Diff. (%) vs. AU-CA 1Y3M Swap Diff. (%)
Source: MNI – Market News / Bloomberg
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