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CANADA: Can-US Yield Differentials Back Closer To Recent Multi-Decade Lows

CANADA
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  • Can-US yield differentials continue to extend what’s becoming a notable widening today, with the 2Y at -133bp (-5.7bps) and 10Y at -130.6bps (-2.9bps).GoC yields didn't track the lift in Tsy yields after the positive tone to Trump-Xi call readouts and healthy US data.
  • They may be off lows closer to -140bp seen earlier this month but they’re still extremely depressed, with the 2Y last lower in the late 1990s and the 10Y unprecedented.
  • BoC-dated CORRA OIS has 20bp of cuts priced for Jan 29 and with a cumulative two 25bp cuts priced with the July meeting.
  • After 175bp of cuts last year, it would leave a terminal overnight rate target at ~2.75%, the mid-point of the BoC’s 2.25-3.25% range it has previously estimated for neutral.
  • The market remains notably more hawkish than analysts with multiple calls for 2.25% and some below that.
  • It’s a busy start to next week with President-elect Trump’s inauguration on Mon along with the BoC’s BOS and CSCE releases for Q4 before CAD CPI on Tue. The latter is expected to continue to show core CPI above BoC forecasts for Q4, coming ahead of fresh forecasts with the January MPR. 
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  • Can-US yield differentials continue to extend what’s becoming a notable widening today, with the 2Y at -133bp (-5.7bps) and 10Y at -130.6bps (-2.9bps).GoC yields didn't track the lift in Tsy yields after the positive tone to Trump-Xi call readouts and healthy US data.
  • They may be off lows closer to -140bp seen earlier this month but they’re still extremely depressed, with the 2Y last lower in the late 1990s and the 10Y unprecedented.
  • BoC-dated CORRA OIS has 20bp of cuts priced for Jan 29 and with a cumulative two 25bp cuts priced with the July meeting.
  • After 175bp of cuts last year, it would leave a terminal overnight rate target at ~2.75%, the mid-point of the BoC’s 2.25-3.25% range it has previously estimated for neutral.
  • The market remains notably more hawkish than analysts with multiple calls for 2.25% and some below that.
  • It’s a busy start to next week with President-elect Trump’s inauguration on Mon along with the BoC’s BOS and CSCE releases for Q4 before CAD CPI on Tue. The latter is expected to continue to show core CPI above BoC forecasts for Q4, coming ahead of fresh forecasts with the January MPR. 
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