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CIBC Trade Recommendation: Entering Jan/Mar OIS Steepener

CANADA
  • CIBC are entering a steepener to receive Jan, pay Mar today at 22.0bps, targeting 30.0bps and cutting-out at 18.0bps.
  • “The crux of the debate around waiting to hike rests on whether or not the Bank feels comfortable in the view that delaying a hike, by at least six-weeks, will provide more visibility into the path of the virus whilst not ‘heating up’ inflationary pressures further – whether that comes from wages, ongoing supply-chain issues or household expectations”.
  • They “remain of the view that the next hike will come as early as March, but not next week”, whilst the binary nature of the meeting reduces attractiveness of selling the Jan gap outright at current tradeable levels.
  • “By receiving the January OIS gap and paying March, we can gain exposure to a rate hike this month as presumably the market would reprice the amount of CORRA normalization in March but also add more probability of a back-to-back hike. If we are right, and no hike occurs next week, this trade will also work as the January meeting reprices and even more CORRA normalization works its way into the March gap.”
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