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CANADA: BoC Terminal Rate Eyed At Highest Since July

CANADA
CanadaBulletMarketsFixed Income BulletsForeign Exchange BulletsNorth America
  • BoC-dated OIS at one point showed 29bp of cuts priced for the Dec 11 meeting but has since shifted back to the 30bp seen after yesterday’s fiscal stimulus package.
  • That’s still a sizeable increase from the ~36bp seen prior to CAD CPI on Tuesday, helped today by solid details within today’s retail sales report after some overnight weakness.
  • Can-US rate differentials are little changed on the day but echo that sizeable increase over the week, with the CORZ5-SFRZ5 implied yields at -84bps vs -99bps from Friday’s close [left chart].
  • The lift in implied yields over the week has seen the assumed Canadian terminal rate push to its highest since early July [right chart]. At 3.12%, it’s at the top of the BoC’s estimated neutral rate range of 2.25-3.25%.
  • GDP for Q3 and final Sept/flash Oct swings into view next week. With tracking estimates suggesting 1% annualized in Q3 vs the 1.5% the BoC forecast and momentum into Q4 important considering the BoC is looking for an acceleration to 2.0%. 
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  • BoC-dated OIS at one point showed 29bp of cuts priced for the Dec 11 meeting but has since shifted back to the 30bp seen after yesterday’s fiscal stimulus package.
  • That’s still a sizeable increase from the ~36bp seen prior to CAD CPI on Tuesday, helped today by solid details within today’s retail sales report after some overnight weakness.
  • Can-US rate differentials are little changed on the day but echo that sizeable increase over the week, with the CORZ5-SFRZ5 implied yields at -84bps vs -99bps from Friday’s close [left chart].
  • The lift in implied yields over the week has seen the assumed Canadian terminal rate push to its highest since early July [right chart]. At 3.12%, it’s at the top of the BoC’s estimated neutral rate range of 2.25-3.25%.
  • GDP for Q3 and final Sept/flash Oct swings into view next week. With tracking estimates suggesting 1% annualized in Q3 vs the 1.5% the BoC forecast and momentum into Q4 important considering the BoC is looking for an acceleration to 2.0%.