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Yesterday’s BoC policy rate hike continues to cause turmoil for Canadian bonds:

Canadian government bonds extended their slump, pushing two-year yields to the highest since 2013, the day after the Bank of Canada raised interest rates for the first time in seven years and signaled more tightening may be ahead.

Yields rose across maturities. The Canadian dollar was little changed near a one-year high rallying 1.3 percent Wednesday.

While the decision to boost rates was expected by a majority of economists surveyed by Bloomberg, investors were surprised by the Bank of Canada’s effort to downplay weak inflation and signal that the economy’s output gap will close earlier than previously forecast.
…
There’s a 74 percent probability that policy makers led by Governor Stephen Poloz will increase rates again this year, according to overnight index swaps data compiled by Bloomberg, which would reverse the two cuts the central bank carried out in early 2015 to counter the effects of falling oil prices. There’s also a 26 percent chance of two additional hikes this year.

Yields fell back a bit as the day wore on – the Canada five-year closed at 1.53%.

This entry was posted on Thursday, July 13th, 2017 at 9:50 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.