PrefBlog

Trade politics are complicating projections of Canadian interest rates:

The gap between September 2018 and December 2018 bankers’ acceptance futures narrowed to 14.5 basis points Tuesday amid record two-day volumes in the spread. Market participants are now pricing in just 41 basis points of additional policy tightening by year-end, down from more than 60 basis points as recently as last month. The Canadian dollar has declined in tandem, sliding 2.6 per cent against the greenback since the start of June.

Expectations for future BOC rate hikes are waning as the outlook for North American Free Trade Agreement negotiations grows increasingly fraught.
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The odds of a rate increase at the BOC’s July 11 meeting have dwindled to about 67 percent, according to overnight index swap pricing, from roughly 80 percent in the aftermath of the bank’s May 30 meeting.

The Canadian dollar has tumbled more than 5 per cent versus the greenback in 2018, making the loonie the second-worst performing Group-of-10 currency in the span.

PerpetualDiscounts now yield 5.55%, equivalent to 7.22% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 3.80%, so the pre-tax interest-equivalent spread is now about 340bp, a significant widening from the 330bp reported June 13.

This entry was posted on Wednesday, June 20th, 2018 at 7:27 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.