Traders stick with Canadian rate-hike bets despite fresh lockdowns
BNN Bloomberg
A wave of new COVID-19 restrictions over the holidays hasn’t blunted market bets that the Bank of Canada will start raising interest rates early this year.
A wave of new COVID-19 restrictions over the holidays hasn’t blunted market bets that the Bank of Canada will start raising interest rates early this year.
Investors set aside worries about omicron to drive Canadian government bond yields higher on the first day of trading in 2022, with markets cementing expectations for five rate increases this year. At least one hike is fully priced at either the first two Bank of Canada policy decisions -- Jan. 26 or March 2.
The bets are a catch-up to the surge in global yields on Monday, when Canadian markets were closed. But they also represent a recognition the current spike of coronavirus cases and new restrictions won’t undermine the inflation dynamics of a fully recovered Canadian economy. Consumer price gains have been hovering at the highest in three decades.
Over the last week, Canada’s two most populous provinces -- Ontario and Quebec -- introduced a series of new lockdowns to prevent COVID-19 from overwhelming the hospital system. While that could slow economic activity at the start of this year, it isn’t expected to derail the nation’s expansion and may even stoke inflation further by causing additional supply-chain disruptions.
“In terms of policy implications, we are inclined to believe that despite the disheartening events on the pandemic, the BoC will keep on its trajectory to start lifting rates next spring,” Jimmy Jean, chief economist at Desjardins Securities Inc., said in a report on Tuesday.
