Canadian Yields Could Underperform US Yields

There has been a palpable shift in global central bank policy in recent months. Suddenly, central banks have given up the notion that inflation is transitory and are now outdoing each other in the pace of their hikes. The Bank of Canada is one such example. They started with a 25bp hike in March, switched to 50bp hikes in April and June, and dramatically hiked by 100bps to 2.5% in July (Figure 1). In their statement, they now say that inflation "will likely remain around 8% in the next few months" and that "domestic price pressures from excess demand are becoming more prominent".

To read the entire article, click the button below:

Related Articles

  • October 23, 2023
    The decision awaited from the Bank of Canada on October 25th couldn’t be more delicately poised given the global context, the geo-political backdrop, and the evolution of Canada’s domestic economy. In this article, Mohammad Ali discusses topics that frame the global context and look at the Canadian macro-economy and its implications for the domestic Fixed Income markets.
    October 3, 2023
    The Great Financial Crisis of 2008 laid bare the destabilizing potential of basis risk between Canadian Bankers’ Acceptance rates and/or Three-Month Canadian Bankers’ Acceptance Futures (BAX) and a truly risk free rate. After 15 years and much effort, market inertia has finally been overcome and it is time to replace BAX contracts with the ascendant Three-Month CORRA Futures (CRA) contracts in various models.
  • October 31, 2023
    In this Futures Flash series article, we provide investors with an update on the switch risk embedded in Canada Bond Futures contracts and the implications for likelihoods of cheapest-to-deliver switches, and review factors affecting the switch risk across different curve segments.
    November 15, 2023
    In this Futures Flash series article, we explore cross currency value opportunities between Canadian and US bonds and provide investors with simple analytical tools, including z-scores/regression, to identify similar opportunities and trade these relative value propositions.
  • November 20, 2023
    First Notice day is November 29, and the liquid part of the roll period would ordinarily begin on November 24 but that is the bridge day between US Thanksgiving and the weekend which is often taken as a holiday. We suspect the roll begins early, therefore, perhaps as early as the 21st even though there will be two days after the weekend to resolve positions prior to first notice. Be ready for an early start if you need a lot of liquidity to roll your positions.