MNI BOC Review - October 2021: Hawkish Surprise

MNI BOC Review - October 2021: Hawkish Surprise

EXECUTIVE SUMMARY:

• The Bank of Canada's hawkish policy announcement Wednesday, weighed heavily on short end rates contributing to the week's global curve flattening.
• Canada 2Y yield surged over 25bp, 5Y yield over 15ps. Heavy selling spilling over to short end US rates as the timetable for rate hikes accelerated.
• While the Bank held the policy rate steady at the lower bound, it's decision to end asset purchases as of November 1 and move directly to reinvestment phase surprised markets that were largely anticipating only a reduction in weekly purchases to C$1B and reinvestment to occur in early 2022.
• While Canadian markets were already pricing in a rate liftoff in April 2022, short end rates were overwhelmed as the Bank forward guidance implied rate liftoff to midyear 2022 from the second half of 2022.
• "We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank's projection, this happens sometime in the middle quarters of 2022."

MNI BoC Review, October 2021.pdf