Poloz Inverts Canada’s Yield Curve by Removing Rate-Hike Bias

(Bloomberg) -- Stephen Poloz has inverted Canada’s yield curve. The central bank’s decision to remove a bias to higher interest rates pushed longer-term government bond yields lower, dropping them below short-term debt.

The 3-month government bill yields about 1.68 percent, compared with 1.67 percent for the 10-year note, according to data compiled by Bloomberg. An inverted government yield curve is seen by some economists as a signal of a looming recession. The curve inverted in late March for the first time since 2007, before returning to normal on April 3.

Poloz Inverts Canada’s Yield Curve by Removing Rate-Hike Bias

Policy makers in Ottawa led by Governor Poloz left their benchmark overnight rate unchanged at 1.75 percent for a fourth straight decision Wednesday, and dropped a reference to future increases that had been in every rate statement since the end of 2017.

The bank mentioned a series of factors -- from slower global growth to sluggish housing and oil sectors -- that brought Canada’s economy to a near halt over the past six months. It also laid out a more dour growth forecast for this year than economists are expecting.

The bulk of Canada’s yield curve remains normal, with most long-term rates higher than short-term ones. There is a 16 basis-point gap between two- and 10-year bonds. The U.S. also has an inverted curve, when comparing three-month and 10-year notes.

The loonie declined after the dovish rate announcement, dipping close to a four-month low before paring losses. The currency traded at C$1.3460 per U.S. dollar at 11:51 a.m. One dollar buys about 74 U.S. cents. Canadian Imperial Bank of Commerce advised clients to bet on further declines in the Canadian dollar.

©2019 Bloomberg L.P.