As expected, the Bank of Canada held its overnight rate steady at 1%, citing an uncertain global economic backdrop an expectations that recent growth in the US will moderate in the months ahead. Should the economic picture deteriorate further, the Bank of Canada has the flexibility to decrease its overnight rate, and in fact, markets are actually assigning a very high probability of a 25bp cut in the overnight rate at some point in 2012.
Notwithstanding the downward pressures on short rates, the bond market has sold off a bit this morning at the five and ten year maturities, taking yields higher. Stronger than expected Chinese GDP growth for 2011 (8.9% vs. 8.7% exp.) and a good reading in the Empire Manufacturing Index in the US providing the impetus.