Term CORRA: What It Is, How It's Calculated, and Whether It's Accurate

Term CORRA is a forward-looking interest rate that reflects market expectationsfor Canada’s overnight rate over the next 1 or 3 months. It is designed to helplenders and borrowers plan ahead. But how accurate is it?

✅ Quick Summary

• Term CORRA is published by CanDeal Benchmark Administration Services (CBAS).
• It uses CORRA futures prices to estimate average overnight rates over the next 1 or 3 months.
• It's part of Canada's transition away from CDOR.
• It's used in floating-rate loans, and derivatives such as interest rate swaps.

🔧 How Term CORRA Is Built

CanDeal uses a two-tier approach:

▶️ Level 1 (Primary method)

• Based on actual trades and executable quotes of CORRA futures on the Montréal Exchange.
• It constructs a piecewise flat forecast of overnight rates; assuming changes only occur after Bank of Canada meeting dates.
• The 1M Term CORRA rate is then compounded from this implied path.

📉 Level 2 (Fallback)

• If there isn't enough futures market activity, CBAS falls back on an adjusted compounded rate from prior days.

📈 How Accurate Is Term CORRA?

To find out, we compared 1M Term CORRA on each day to what actually happened to CORRA over the next 30 days.

That means comparing:

• 1M Term CORRA on day T
• To the realised compounded CORRA from T+1 to T+30

Chart 1: Term CORRA vs Realized Future CORRA

Figure 1: 1M Term CORRA (in navy) vs actual compounded CORRA (in teal) for the 30-day period ahead. The closer the lines, the better the market's prediction.

Chart 2: Forecast Error (Spread)

Figure 2: Spread between Term CORRA and realized CORRA. A positive spread means the market expected higher rates than actually occurred.

🧾 Interpreting the Spread

The chart above shows the difference between Term CORRA and realized forward CORRA:

Positive spread:

• Term CORRA was higher than what actually happened.
• This means the market overestimated the future path of rates.

➕ This was especially common when the Bank of Canada was cutting rates or when the market priced in future hikes that never came.

Negative spread:

• Term CORRA was lower than realized CORRA.
• This means the market underestimated where rates would go.

➖ Typically happens when the BoC hikes unexpectedly or delivers a stronger-than-expected signal.

📌 In practice:

If you borrowed using Term CORRA and the spread was positive, you overpaid compared to compounded CORRA.

If the spread was negative, Term CORRA worked in your favour.

📊 Where Can I Find Related Data?

• ✅ CAD Swap Rates
• 📈 CORRA Forward Curves

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🔚 Summary

Term CORRA is a useful tool for forecasting interest costs, but it's only as accurate as the market's expectations. By comparing it to what actually happened, we can get a better understanding of the pros and cons of using Term CORRA vs Compounded CORRA.