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BAX Implied Yields Cool

CANADA
  • Hikes implied by BAX futures over the next year have cooled as they catch up with an earlier move lower in yields further out the curve, now down -5-5.5bps through 2023.
  • The broadly parallel shift in the curve from 1Q23 onwards plus a further steady widening in FRA-OIS trims the roughly implied terminal overnight rate to circa 3%, still the top end of the 2-3% neutral rate range.
  • Nearer quarters are more resilient on the day and will be whilst OIS still prices nearly 100bp of hikes over the next two meetings, supported by latest comments by BoC’s Gravelle along with apparent FOMC consensus for the same pace in the US.

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  • Hikes implied by BAX futures over the next year have cooled as they catch up with an earlier move lower in yields further out the curve, now down -5-5.5bps through 2023.
  • The broadly parallel shift in the curve from 1Q23 onwards plus a further steady widening in FRA-OIS trims the roughly implied terminal overnight rate to circa 3%, still the top end of the 2-3% neutral rate range.
  • Nearer quarters are more resilient on the day and will be whilst OIS still prices nearly 100bp of hikes over the next two meetings, supported by latest comments by BoC’s Gravelle along with apparent FOMC consensus for the same pace in the US.