GoC Yields Marginally Lower Into BoC, Multi-Week Lows In touching Distance

Some light outperformance for GoCs vs. US. Tsys early today, with focus on the impending BoC decision.

• Yields are 0.5-1.5 bp lower across the curve, operating a little above yesterday’s multi-week lows, with a very modest flattening bias.
• A little over 20bp of cuts are showing for today’s decision, with ~64bp of cuts priced through year end.
• Having been more divided over the viability of a June BoC rate cut, market consensus and pricing has sided with this week’s meeting as the start of the easing cycle, with a 25bps rate cut to 4.75% the most likely outcome.
• The sequence of softer-than-expected inflation prints has extended since the last decision, pointing to a further moderation of inflationary pressures and, likely, expectations.
• However, we don’t expect a declaration of victory on inflation from the BoC this week.
• The expected rate cut should be accompanied by clear communication that the pace of easing ahead will be gradual and measured in order to prevent an even wider gap between US and Canadian rates – and the implicit impacts on the exchange rate.
• Our full preview of the event can be found here.