This is likely to be happening because of the Bank’s big head start at 1% rate in fall 2014 according to BMO Capital markets. This rate in the beginning is lower neutral rate than in USA. It is also assumed that Bank of Canada is expected to hike its policy rate by 25 basis points to 1.25 percent (Deepti Govind, 2014).The other reasons as expected could be the soft economy and persistently weak inflation. The inflation has remained below 2% for about more than 2 years in continuous. Based on these, the overnight index swaps and this will move base on the expectations of Central Bank Policy rates (The Canadian Press, 2014). The trades in this case will place small bets on rate cut. These all reasons indicate towards the rise of the interest rates in the upcoming October 2015 as expected and forecasted by many economists (Bank of Canada, 2014).
Another important factor in Canada is the increase in the housing rates. It is expected to increase the housing price by 1.1% by 2015. This increase will result in the increase in interest rates until 2016, once the interest rates are normalized.
Overall, it is evident from the analysis that bond yield returns higher for the longer period as for 1 month, 3 month or 6 month, the return was lower in comparison to the return for the period of 1-3 years. Therefore, it is recommended for invest for longer period though this yield also depends on other factors for example government policies, inflation rate, GDP, etc. (Deepti Govind, 2014). The interest rates are likely to be increase in October 2015 as estimated based on the past trends. This is because of various policy changes by the Bank of Canada and the market trends. Finally, the interest will increase by October 2015 from now onwards.