Following the Bank of Canada’s (BoC’s) more dovish tone in December and our view that the Federal Reserve will take a pause on tightening policy in the first quarter, Canada’s 1Y swap rate has been experiencing downward pressure. It currently (below) indicates there’s around a 60% chance of one full rate hike in the coming year, whereas back in October, markets had two full rate hikes priced in. We have projected a modest slowdown in the US this year for some time, but the unexpected arrival of the government shutdown suggests growth risks are moving to the downside (read our in-depth analysis of the shutdown here). ... (full story)