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While the magnitude and frequency of last week’s rate changes were at times difficult to keep up with, the trend of higher rates is likely still far from finished. Spreads are still considered to be compressed and another increase to fixed rates this week is not out of the question if US economic announcements drive increases to Canadian bond rates. Looking forward, in an effort to combat inflation Central Banks are expected to front load rate increases versus the original increase expectations set earlier this year. The view here is that it’s better to be aggressive against inflation early rather than take a wait-and-see approach with slower rate hikes. For us it means rates will continue to climb faster than originally expected.

Variable Rates: The Bank of Canada’s next rate announcement is scheduled for April 13th and a 0.50% increase in the overnight rate (currently 0.50%) is a real possibility. If the BoC moves 50bps, and if Banks move in lockstep with this change, Prime would increase to 3.20%.

BoC Overnight Rate since 1999 (affects Prime)

Fixed: The benchmark five year GoC bond yield currently sits a full 1.00% higher than it was on March 1st (~2.48% now vs 1.48%) and the GoC bond rate is now at levels not seen since 2011. US Markets are also starting to price in the possibility of a 50bps rate hike at the Fed’s next meeting in early May and that too could have a ripple affect on Canadian markets.

This week there are a lot of key announcements from the US. Canadian March employment stats will be announced next week.

  • US Consumer Confidence Index (Tuesday)
  • US Job Openings (Tuesday)
  • US ADP Employment Report (Wednesday)
  • US Jobless Claims (Thursday)
  • CAD 30 Year Bond Auction (Thursday)
  • US PCE (Personal Consumption Expenditures) Index (Thursday)
  • US March Unemployment Rate (Friday)
  • US March Motor Vehicle Sales (Friday)