The Bank of Canada announced they were leaving interest rates unchanged. The salient paragraph was the last one:
Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2 per cent inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated.
This basically means that short term rates are not going to increase for at least half a year, but likely for the rest of 2013. BAX quotes reflect a slight expectation of higher rates approaching the end of 2013:
| Month / Strike | Bid price | Ask price | Settl. price | Net change | Open int. | Vol. |
|---|---|---|---|---|---|---|
| Open interest: 543,666 | Volume: 171,501 | |||||
| 13 FEB | 0 | 0 | 98.745 | 0 | 0 | 0 |
| 13 MAR | 98.710 | 98.715 | 98.710 | 0 | 101,834 | 14,761 |
| 13 APR | 0 | 0 | 98.695 | 0 | 0 | 0 |
| 13 JUN | 98.710 | 98.720 | 98.720 | -0.010 | 119,478 | 45,715 |
| 13 SEP | 98.680 | 98.690 | 98.690 | -0.010 | 113,065 | 42,119 |
| 13 DEC | 98.640 | 98.650 | 98.660 | -0.010 | 90,020 | 34,371 |
| 14 MAR | 98.590 | 98.600 | 98.610 | -0.010 | 56,655 | 19,399 |
| 14 JUN | 98.540 | 98.550 | 98.550 | -0.010 | 31,336 | 9,242 |
| 14 SEP | 98.480 | 98.490 | 98.490 | 0 | 14,456 | 3,892 |
| 14 DEC | 98.410 | 98.430 | 98.430 | -0.010 | 9,608 | 1,602 |
| 15 MAR | 98.350 | 98.370 | 98.370 | 0.070 | 4,925 | 94 |
| 15 JUN | 98.280 | 98.300 | 98.300 | 0.080 | 1,185 | 17 |
| 15 SEP | 98.220 | 98.240 | 98.240 | 0.070 | 754 | 182 |
| 15 DEC | 98.150 | 98.170 | 98.170 | 0.060 | 350 | 107 |
The important figure is the 10-year government bond and its yield has not gone anywhere over the past year:
The implications here is that if there are going to be disruptive changes in asset prices, it is unlikely to result from interest rate changes. This would suggest that the REIT market and other yield-driven markets will continue to receive demand as investors clamour for yield. I also suspect that real estate asset prices will continue to exhibit a slow deflation rather than a bubble popping.