BMO said that Bank of Canada will not make a move till July 2013. Bank of Canada Overnight Lending Rate directly influences the lenders prime rate. Generally it is 200 basis points higher than BOC rate. Although it does not have any direct relationship with the fixed rate but it has the potential to disrupt bond yields.
According to Michael Gregory, Senior Economist, BMO Capital Markets, there are three reasons for that.
BMO offered a trend setting low mortgage interest rate in the beginning of this year. The bank caught many other lenders off-guard by offering a very low interest rate. At that time bond yields were low as well. Now the situation is changing. Yield curve is working out to get back to its regular self and the chances are that BOC is helping it.
If (that is a big if) yields continue to gain momentum then the prediction will change too. The predictions are based on futuristic appearance of present parameters. That appearance may change in future.
The five years (GOC) bond yield was strong in March and it went down in a slump again in May. Therefore what appeared to be a strong signal of future rate hike at that time has lost its steam as of today.
