I figure it would be helpful to see what the Canadian interest rate futures are doing and to make some projections as to what the market is saying about future rate increases:
| Month / Strike | Bid Price | Ask Price | Settl. Price | Net Change | Vol. |
| + 10 MA | 0.000 | 0.000 | 99.375 | 0.000 | 0 |
| + 10 JN | 99.150 | 99.160 | 99.250 | -0.100 | 14740 |
| + 10 JL | 0.000 | 0.000 | 99.365 | 0.000 | 0 |
| + 10 SE | 98.730 | 98.740 | 98.820 | -0.080 | 22075 |
| + 10 DE | 98.340 | 98.350 | 98.410 | -0.060 | 29381 |
| + 11 MR | 98.050 | 98.060 | 98.100 | -0.050 | 8873 |
| + 11 JN | 97.740 | 97.770 | 97.810 | -0.060 | 2777 |
| + 11 SE | 97.440 | 97.480 | 97.550 | -0.080 | 2076 |
| + 11 DE | 97.220 | 97.270 | 97.310 | -0.070 | 216 |
| + 12 MR | 96.910 | 97.150 | 97.060 | -0.250 | 1 |
| + 12 JN | 96.550 | 96.930 | 96.860 | 0.000 | 0 |
My projection for the Bank of Canada overnight interest rate level is the following:
June 1, 2010 (+0.50% to 0.75%)
July 20, 2010 (+0.25% to 1.00%)
September 8, 2010 (+0.25% to 1.25%)
October 19, 2010 (+0.25% to 1.50%)
December 7, 2010 (+0.25% to 1.75%)
What has changed since my last projection is that the initial rate increase in June 1, 2010 will be 0.50% instead of 0.75%. I still see subsequent rate increases of 0.25% at each scheduled announcement. You can probably thank the European debt situation for this change.
Although Canada’s economy is much less linked to Europe than it is to the USA, it is enough to factor into the economic calculation. In particular, the Euro has dropped significantly and this will lessen the competitiveness of Canadian exports into the Euro market.
That said, relative to the US dollar, the Canadian dollar has slipped a little, but this probably isn’t enough to take into consideration other than “wait and see”.
Long-term rate projections, which is more relevant for mortgage pricing, has had rates drop over the past two weeks. 5-year bond rates are 2.74%, while the 10-year is at 3.47%, which is roughly the rates seen in the past three quarters. If the market stabilizes at the existing level, I would not be shocked to see a 5-year fixed mortgage rate offered at 4.00% in the next couple weeks.