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Can-US Yield Differentials At Levels Set After Oct BoC Downshift

CANADA
  • GoCs continue to see marginal underperformance to Tsys today, but it’s not enough to materially change heavily negative Can-US yield differentials across the curve.
  • The -57bps for 2Y and -75bp for 10Y are back close to the levels they slumped to after the Oct 26 BoC surprise downshift to a 50bp hike.
  • Tomorrow's decision is seen in a tight call between another shift to 25bp or keeping to 50bps. In the event of 25bps, to prevent a further decline it will likely need guidance that shows a switch towards getting to a certain terminal rather than the speed at which it gets there.
  • There is however a scenario where this is only revealed in the Economic Progress Report on Thursday with a dovish reaction in the interim.

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