Article content continued

“A rate cut would require signs that the economy is declining,” said Craig Alexander, chief economist at Deloitte Canada, in a television interview with BNN Bloomberg Friday. Still “the inverted yield curve is troubling. Inverted curves have often been accompanied by recession.”

Yields on government bonds have fallen in recent weeks amid weakening economic data in Canada, including lower than expected growth in the last quarter of 2018. The Federal Reserve Wednesday tilted even more dovish and the German bond yield returned to zero Friday as Europe’s largest economy weakens.

“Signs of a global slowdown are real,” said Alexander, who has also worked at the Conference Board of Canada and Toronto-Dominion Bank. “This certainly puts the Bank of Canada on hold.”

Investors are buying top-rated government securities in Canada as retail sales unexpectedly declined in January, reinforcing concerns that consumers may no longer be able to drive the economy with household debt at record levels and borrowers facing higher costs following five rate hikes by the Bank of Canada. Economists forecast growth of 1.5 per cent this year, down from 1.8 per cent in 2018, according to Bloomberg surveys.

“The yield curve is the best economist out there” and shouldn’t be ignored, said Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, in an interview Monday with BNN Bloomberg.

Canada Deterioration

While the inversion of the curve is a wider trend in developed markets from New Zealand to Germany, Canada’s curve suggests that the outlook for its economy “has deteriorated more than most,” said Greg Gibbs, a founder of Amplifying Global FX Capital, in a note to investors. “Canadian real long-term yields have fallen more abruptly than in the USA, into negative territory.”