Canadian interest rate futures

There are three Bank of Canada announcements concerning interest rates for the rest of the year: September 6, October 25 and December 6.

Right now 3-month Banker’s Acceptance rates are 1.2%.

The BAX futures are signalling that there is a better than 50/50 chance that rates will increase 0.25% in the September 6 cycle, and that there is a slight chance of two 0.25% rate increases by the end of the year:

Month Bid price Ask price Settl. price Net change Open int. Vol.
Open interest: 942,178 Volume: 86,058
August 2017 0 0 98.765 0 0 0
September 2017 98.655 98.660 98.645 0.010 137,868 7,160
October 2017 0 0 98.615 0 0 0
December 2017 98.500 98.505 98.490 0.010 224,303 15,544
March 2018 98.395 98.400 98.375 0.020 163,606 19,552
June 2018 98.330 98.335 98.305 0.025 112,558 15,558
September 2018 98.270 98.280 98.250 0.030 120,395 10,055
December 2018 98.210 98.220 98.200 0.020 102,302 9,439
March 2019 98.160 98.170 98.140 0.020 45,030 5,208
June 2019 98.090 98.100 98.080 0.020 17,655 1,763
September 2019 98.010 98.030 98.010 0.010 10,774 827
December 2019 97.940 97.960 97.940 0.010 5,193 646
March 2020 97.860 97.870 97.870 0 2,199 198
June 2020 97.780 97.800 97.800 -0.010 295 108

Guessing the impact of these short-term interest rate changes I will leave as an exercise to the reader for now. The one salient fact, however, is that when short-term financing rates increase, the incentive to leveraging decreases and so marginal investments will be less viable. Parking cash in a rising-rate environment is best done with cash rather than using any debt instruments with duration (I wish I had stuck to this – my cash parked in VSB.TO has decidedly unperformed zero-yield cash!).

4 thoughts on “Canadian interest rate futures”

  1. Just wonder why not use PSA on TSX or highrate saving accounts that has mutual fund code? Using VSB to try to milk that extra 100+ basis point?

  2. I got tired of the low .75% (now .85) at TD Web….so have played the Tang/EQ 3 month shift game for the last 2 years. I have avg about 2.8% doing this and can have the money in my trading account within 48 hrs.

  3. @Will / @Marc: Congrats. I always think these short-term HISA promotions were stupid because they encourage customers to take their capital out once the promotional rate is over. I guess they continue to do it because people are too lazy to find other solutions to short-term cash but if EQ and Tangerine are alternating, more power to you!

    @Will: Yeah, tried to get too fancy. VSB does have 1.5% YTM after expenses so it isn’t a total loss over time but right this very second the HISA option would have worked a lot better. This doesn’t count for the registered accounts, however. I guess dumping that into EQB 100 (1.5%) would have worked better.

  4. Me, I like the prime reset preferred issued by Bam or Bce to park cash. As the rate rises their yield rises and they are still out of favour to a certain degree leading to a good chance of capital gains. I did very well with them in the last year…

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