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CANADA: Elevated CORRA Spreads Could Limit BoC Dovishness

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  • Offering another reason as to why the Bank might not want to sound too dovish next week is the recent widening in CORRA to target rate spreads.
  • They recently touched as high as 8bp on Oct 9 but have also regularly seen 6-7bps before dipping to 5bps most recently.
  • The Bank has previously discussed various factors behind CORRA regularly sitting above the overnight target including leveraged accounts looking to position for lower rates (see the above on notably lower Can-US yield differentials), basis trade activity and the shift to t+1 settlement.
  • The extent to which the former has driven higher spreads could see an incentive for caution in sounding overly dovish next week for the BoC. 
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  • Offering another reason as to why the Bank might not want to sound too dovish next week is the recent widening in CORRA to target rate spreads.
  • They recently touched as high as 8bp on Oct 9 but have also regularly seen 6-7bps before dipping to 5bps most recently.
  • The Bank has previously discussed various factors behind CORRA regularly sitting above the overnight target including leveraged accounts looking to position for lower rates (see the above on notably lower Can-US yield differentials), basis trade activity and the shift to t+1 settlement.
  • The extent to which the former has driven higher spreads could see an incentive for caution in sounding overly dovish next week for the BoC.