We Just Got Downgraded: The government is spending too much and it’s caught up with them. Our record quarter-trillion deficit worried Fitch, a ratings firm, enough to cut Canada’s credit rating today. “Pandemic lockdown measures and depressed global oil demand will cause a severe recession of the Canadian economy,” it says. Fitch projects Canada’s consolidated gross general government debt will soar to 115.1% of GDP in 2020, from 88.3% of GDP in 2019. Loss of our AAA rating implies incrementally higher risk of default, so investors could demand higher interest rates on Canadian debt. That would theoretically boost borrowing costs over time. As we speak, however, the 5-year bond yield is down since the news broke. It’s hard to say how much of that is thanks to the Bank of Canada, which has been buying billions of dollars of bonds for weeks. (Bond buying raises bond prices, other things equal. That lowers interest rates, since prices and yields move inversely.) At the end of the day, this news doesn’t change Canada’s outlook significantly. The U.S. is a case study. It lost its perfect AAA bond rating in 2011 and never got it back. Since then, U.S. 5-year rates have dropped 76 bps. There are clearly greater forces are at play than credit ratings. Thankfully for now, there’s no adverse impact on Canadian yields, and hence no current effect on mortgage rates.