Commentary
The Bank of Canada has elected to raise its policy rate to 4.75 percent. The market in the form of the yield curve had estimated a 40 percent to 45 percent chance that the Bank would raise the key rate. Economists had put the probability at only 20 percent. Yet again the market outperforms economists.
The day before, one-year rates traded around 4.96 percent while ten-year yields traded at an eye-opening 1.64 percent below that yield at 3.32 percent. One-year rates were steady after the announcement while ten-year yields rose about ten basis points after the announcement.
Bond investors seemed shaken. The collective opinion of the market may be shifting away from significant raise cuts late in the year to a couple of small rate hikes followed by staying at the terminal rate for a while. Bonds look less appealing….