Categories for Economic Analysis

Bond Yields Getting Nuked

If you ever wondered what bond yields would do if we were facing a potential nuclear holocaust, we’re getting a small taste of it today. We are seeing Canada’s 5-year yield, normally a key driver of fixed mortgage rates, crash for the second week in a row. This plunge in yields is eerily reminiscent of the vicious 2008 credit crisis,...

As Rates Collapse, the BoC Opines on Housing Risk

If you want to know what investors think of Canada’s economic prospects, this chart almost says it all: This sort of meltdown signals raw fear. Such moves are not usually reflective of just a little economic blip ahead, but a king-sized economic crisis. No hyperbole intended. What does it mean for rates? It means rate expectations are falling by the...

BoC Rate Cut Now Fully Priced in for April

The global viral crisis is proving incredibly fluid. Traders have suddenly and drastically altered their expectations of how the Bank of Canada will react to this exploding economic threat. At the time this is being written, the market is predicting a 68.3% likelihood of a BoC cut next week. It’s fully pricing in a cut by April 15. Source: Bloomberg...

Amid Pandemic Potential: 5-Year Fixed or Variable?

Consider the state of our world: The yield curve is inverted (usually recessionary) Unemployment may be close to a cycle bottom (often recessionary) Oil prices are plunging (disinflationary) Consumers have too much debt and not enough savings (usually disinflationary) The market is desperate for yield (bullish for bonds / bearish for rates) Inflation is well-anchored (eliminating the need for rate hikes)...

Rates Fall Again & “No Float-Down”

One of the best short-term leading indicators of 5-year fixed mortgage rates is making a beeline towards a 2.5-year low. Canada’s 5-year swap rate is now just 1/10th of a percentage point away from this key threshold, which, if broken, will lead to further fixed-rate cuts. Banks routinely price fixed mortgages against swaps, which are interest rate derivatives used to...

Ultra-low Rates Will Persist: RBC

The 2020s won’t be the decade to lock into a long-term fixed mortgage, not if you believe RBC Economics. It’s projecting just 1.7% annual economic growth for the next 10 years, give or take. That’s roughly a full point less than before the Great Recession. At 1.7% GDP, there’s generally very little reason for rate hikes. Quite the opposite, RBC...

2020 Rate Wildcard: War

Here’s reason #5,369 why we don’t like to predict interest rates: war. Canada woke up this morning to the leader of Iran’s Revolutionary Guards’ Quds force being incinerated by a U.S. bomb. Iran’s Supreme Leader promised “severe retaliation” — whatever that means — and just like that, bond yields plunged. It was completely unpredictable. When global risk escalates, traders instinctively...

2020 Mortgage Predictions

Every December, we try to read the tea leaves and prognosticate what’s ahead for real estate lending. (See this year’s 2020 mortgage predictions.) It’s always a fun exploit, and this year, unlike most, there’s a good shot that our calls go 5 for 5. One topic that remains a crap-shoot in 2020 is housing appreciation. Canada is entering the year with...

Friday’s Unemployment Number May Change the Game

Canada just witnessed its worst spike in unemployment since the Great Recession of 2009. An estimated 71,200 jobs were lost in November. And we all know what happens when unemployment bottoms and starts climbing. Rates usually drop. Is This Really the Bottom in Unemployment? No one knows what tomorrow will bring (until tomorrow). But here’s what we know: Economic cycles have...

A Trade Deal Won’t Change Long-term Rate Trends

With just 12 days until Tariff Man’s next round of threatened tariffs kick in against China, and with new import taxes now threatened on Europe and South America, the market pendulum has swung back to pessimism. “If tariffs scheduled for Dec. 15 are implemented, it would be a huge shock to the market consensus,” Manulife Investment Management’s Sue Trinh told...