Canada: Steady climb higher in yields - TDS

Analysts at TDS note that the CAD fixed income has been very heavy over the last week, as the combination of diminishing liquidity and a general sense that Canadian rates are rich has contributed to a steady climb higher in yields.

Key Quotes

“An above consensus print on retail sales will only reinforce the move, and we look for the Canadian curve to bear steepen on the back of the data. BoC expectations will mechanically grind higher with 2-year rates, but we do not expect a qualitative shift in market expectations on the back of the data— we would need to see a large surprise (in either direction) on October GDP to prompt substantive revisions on that front.”

“We view the front-end as cheap at these levels, but as trading conditions continue to thin out there is every possibility that the sell-off in Canadian rates will continue all the way to New Year’s Eve.”