Largest straight decline in 5yrs moving 57bps in the last couple weeks
We see a similar picture in CAD 2y yields differentials and CAD currency
Below is the 3months Libor/OIS spread showing some more stress in the system
The recent move was therefore justified by many macro variables, heating housing market, higher credit risk, a bounce in commodity markets...forcing a change in monetary policy with central bank raising rates
This is confirmed by my global macro model.
Long term model targets a 10y differential at 29bps so pretty close to current 26bps market level, while shorter term model shows a spread at 38bps.
So if short term dynamics are stretched, Z-scores measures are not at less than 1 standard deviation
I still believe move was too fast and worth buying 10y CAD vs 10y US into US supply next month for trade.
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