🧭 Why These Markets Matter
If you want to understand where the Bank of Canada is heading, watching Overnight Index Swaps (OIS) and Government of Canada bond yields is essential. Together, they reveal how professional investors are pricing the path of interest rates—before any official decision is made.
🔄 1. What Are OIS Swaps?
OIS (Overnight Index Swaps) are interest rate derivatives where two parties exchange:
- A fixed interest rate
- For the average overnight rate (usually CORRA) over a set period
Key Insight:
The fixed leg of the OIS reflects what the market expects the BoC’s policy rate will average over that time.
📊 Example:
A 6-month OIS with a fixed rate of 2.40% implies the BoC’s rate will average ~2.40% over the next 6 months.
🏦 2. How Government Bonds Factor In
Government bond yields, especially in the 1- to 5-year range, also reflect expectations of:
- BoC policy path
- Inflation trends
- Growth risks
Bond investors require higher yields if they expect rates to rise, and accept lower yields if they expect cuts.
| Maturity | Common Use |
| 1-Year | Near-term BoC expectations |
| 2-Year | Sensitive to forward guidance + swaps |
| 5-Year | Mortgage pricing, macro trajectory |
🔁 OIS vs. Bonds: What’s the Difference?
| Feature | OIS Swaps | Gov’t Bonds |
| Reflects | Implied BoC policy path | Policy + inflation + risk premiums |
| Volatility | More sensitive to BoC odds | Influenced by broader market trends |
| Use case | Trader expectations | Broader investor sentiment |
| Mortgage impact | Indirect | Direct (especially 5-year bond yields) |
📉 How They Shift Ahead of BoC Meetings
Leading up to a rate decision:
- OIS rates often adjust first, based on CPI, jobs, GDP
- Bond yields confirm or contradict that move
- Together, they help forecast rate decisions before they happen
📌 Our BoC Odds Dashboard combines these signals into a single view.
🧠 Pro Tip for Investors
- Want to track rate direction? Watch 2Y OIS vs. 2Y Bond
- Looking at mortgage trends? Track the 5-Year Canada Bond
- Looking for market confidence? See if OIS diverges from bond yields
