Good afternoon,

I hope you are able to enjoy some time outside today given the beautiful weather here in YYC. It was a busy week and we received many calls this week about the directions of interest rates and reports in the news and media about an inverted yield curve.

Interest rate and the Bank of Canada

According to Bloomberg, CIBC, National Bank, and TD have all recently joined RBC, Scotiabank and BMO to make a unanimous forecast of a 50-basis point hike to the Bank of Canada’s benchmark overnight interest rate at next week’s policy meeting. The consensus was reached earlier this week after Q1’s survey of executives showed that firms are beginning to hit capacity constraints amid higher anxiety surrounding inflation. Bank of Canada overnight index swaps, which are proxies for financial market expectations of rate hikes, are pricing in an implied probability of about an 80% chance of a 50 bps hike at next week’s meeting. When reviewing the central bank’s dual mandate of price stability and low unemployment levels, it comes as no surprise that the BoC will take a step to aggressively hike rates, given higher inflation and lower unemployment.

Inverted curve yields excessive concerns

We believe that recent discussions of yield curve inversion as a predictor of recessionary risk have gotten ahead of the data and the economics. It’s important to remember that not all curves are created equal and we make the case that the real picture is telling a different story. To read more on the yield curve, please take click here.

We thank you for your patience through the volatile markets and the challenging start to 2022. Please continue to call us as our entire team stand ready to listen and speak with you. We can also be made available to speak with any friends or family members who may need reassurance during these times.

Have a great weekend,

Devin