This tool analyzes Canadian interest rate expectations using the implied 3M CDOR ("Canadian Dollar Offered Rate") movements and probabilities based on BAX prices. This could be used to estimate the probability of upcoming Bank of Canada key target rate movements.

## Implied short-term interest rate movements and probabilities based on BAX prices

Movement (in bps) June 2020 Sept. 2020 Dec. 2020 March 2021 June 2021 Sept. 2021 Dec. 2021 March 2022 June 2022 Sept. 2022 Dec. 2022 March 2023
\$99.415 \$99.455 \$99.420 \$99.390 \$99.320 \$99.250 \$99.175 \$99.115 \$99.060 \$99.030 \$99.010 \$98.990
+100
+75
+50
+25
0
-25   98% 74% 52% 40% 32% 24%
-50 94%   96% 84% 56% 28%
-75   10%

Data delayed by at least 15 minutes.

### How to read the data

Each row represents a potential 3M CDOR rate change in basis points ("bps"). BAX contract expiry months are the header of each column. The number at the intersection of a row and a column represents the implied probability of a 3M CDOR rate change for that magnitude (row) and for this BAX contract expiry month (column). There is one implied change and one implied probability by BAX contract expiry month. The best way to interpret the table is by looking at each BAX contract expiry month separately.

For example, it can be interpreted as: "Given the March 2022 BAX contract with the current price of \$99.115, there is a 74% chance that the 3M CDOR rate moves by -25 basis points by the time we reach the contract expiry".

## Historical implied short-term interest rate movements and probabilities by BAX contract expiry month

### How to read the data

The blue bars represent the historical change (in bps) to the 3M CDOR implied by the selected BAX contract, for each business day of the last 3-month period. The cyan line shows the historical implied probabilities of these changes.

## Methodology

Implied 3M CDOR rate movement (in basis points): Highest implied 25 basis points increment change by BAX contract expiry month.

Implied probability (in %): (BAX contract implied 3M CDOR rate - lowest implied 3M CDOR rate (with a 25bps increment change) by BAX contract) / 25bps). The implied probabilities are calculated assuming no change in the CDOR-OIS spread*.

Example with a 3M CDOR rate at 2% and a BAX contract expiring in 6 months priced at \$97.60: The implied 3M CDOR rate movement of that contract would be 50bps, and the associated implied probability would be ((100 - 97.60) - 2.25) / 0.25 = 60%.

* The 3M CDOR rate may include a risk and/or term premium component in comparison to the Bank of Canada key target rate determined by monetary policy decisions. Therefore, the implied 3M CDOR rate movements and probabilities combine market views of future Bank of Canada policy along with anticipated risk or term premia. The information displayed in the graphs and table above is not adjusted for the projected evolution of this risk and/or term premium.

This downloadable Excel file allows the user to customize the model inputs according to his market assessment or preferences, including modifications to the risk and/or term premium discussed above.

## Disclaimer

This document is made available for general information purposes only. The information provided in this document, including financial and economic data, quotes and any analysis or interpretation thereof, is provided solely for information purposes and shall not be construed in any jurisdiction as providing any advice or recommendation with respect to the purchase or sale of any derivative instrument, underlying security or any other financial instrument or as providing legal, accounting, tax, financial or investment advice. Bourse de Montréal Inc. recommends that you consult your own advisors in accordance with your needs before making decision to take into account your particular investment objectives, financial situation and individual needs.

Although care has been taken in the preparation of this document, Bourse de Montréal Inc. and/or its affiliates do not guarantee the accuracy or completeness of the information contained in this document and reserve the right to amend or review, at any time and without prior notice, the content of this document. Neither Bourse de Montréal Inc. nor any of its affiliates, directors, officers, employees or agents shall be liable for any damages, losses or costs incurred as a result of any errors or omissions in this document or of the use of or reliance upon any information appearing in this document.

Bank of Canada does not sponsor or endorse the BAX implied rate movement and probability calculation tool presented in this document nor make any representation regarding the use of such tool, nor does it have any liability for any errors or omissions within such tool or the rate movement probabilities it calculates.

THE BAX IMPLIED RATE MOVEMENT AND PROBABILITY CALCULATION TOOL (THE "PRODUCT") IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY THOMSON REUTERS CANADA LIMITED OR ANY OF ITS SUBSIDIARIES OR AFFILIATES ("THOMSON REUTERS"). THOMSON REUTERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE PRODUCT OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN SECURITIES GENERALLY OR IN THE PRODUCT PARTICULARLY OR THE ABILITY OF CDOR (THE "BENCHMARK") TO TRACK GENERAL MARKET PERFORMANCE. THOMSON REUTERS ONLY RELATIONSHIP TO THE PRODUCT AND THE BOURSE DE MONTREAL INC. (THE "LICENSEE") IS THE LICENSING OF THE BENCHMARK, WHICH IS ADMINISTERED, CALCULATED AND DISTRIBUTED BY THOMSON REUTERS WITHOUT REGARD TO THE LICENSEE OR THE PRODUCT. THOMSON REUTERS HAS NO OBLIGATION TO TAKE THE NEEDS OF THE LICENSEE OR THE OWNERS OF THE PRODUCT INTO CONSIDERATION IN CONNECTION WITH THE FOREGOING. THOMSON REUTERS IS NOT RESPONSIBLE FOR AND HAS NOT PARTICIPATED IN THE DETERMINATION OF, THE TIMING OF, PRICES AT, OR QUANTITIES OF THE PRODUCT TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY WHICH THE PRODUCT IS TO BE CONVERTED INTO CASH.

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