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RBC On Favorable Opportunities For Long Canada vs US

CANADA

RBC see the BoC hiking 50bp at each of the next two meetings before downshifting to 25bp clips to get rates to the neutral mid-point of 2.5%.

  • Rates should peak across the curve in Q2 and see modest flattening pressures with the belly and long end (5-30y) more downwardly biased than the front end (2y), less so than in the US.
  • They see breakevens remaining anchored in the short term, but falling over the course of the year.
  • BoC terminal rates are seen 50bp below the Fed. However, the 5y5y spread has exploded higher in the past couple of months; it is close to historical highs and very dislocated for a coordinated BoC/Fed tightening cycle. Some of the move can be attributed to investors stopping out, but those with a long-term horizon should be rewarded from receiving CA-US.
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RBC see the BoC hiking 50bp at each of the next two meetings before downshifting to 25bp clips to get rates to the neutral mid-point of 2.5%.

  • Rates should peak across the curve in Q2 and see modest flattening pressures with the belly and long end (5-30y) more downwardly biased than the front end (2y), less so than in the US.
  • They see breakevens remaining anchored in the short term, but falling over the course of the year.
  • BoC terminal rates are seen 50bp below the Fed. However, the 5y5y spread has exploded higher in the past couple of months; it is close to historical highs and very dislocated for a coordinated BoC/Fed tightening cycle. Some of the move can be attributed to investors stopping out, but those with a long-term horizon should be rewarded from receiving CA-US.