Categories for Economic Analysis

This Is Not the Time to Gamble on Rates

“Lower for longer” has become the mantra in the rate market. But mantras don’t last forever. Trump is a rate market shock. He has single-handedly transformed how investors perceive North American growth prospects, inflation and default risk in the U.S. bond market. That’s driven Canada’s bellwether 5-year bond yield near one-year highs. Combine this with Ottawa’s regulatory changes, and suddenly today’s record-low...

Thank You, Mr. Poloz?

“Young folks with mortgages regularly thank me for keeping interest rates low.“ —Bank of Canada Governor, Stephen Poloz In fact, Mr. Poloz’s decisions to keep rates low have practically been made for him, by serially disappointing economic data. Monetary policy has merely reacted to what he terms “a steady decline in the potential growth rate of the economy.” The...

Rate-enomics: Fiscal Deliverance

Economic events that could move your mortgage rate, in no particular order… Frisky Fiscal Stimulators “…The bond market would react very badly to a sudden move to fiscal easing.”—J.P. Morgan Monetary policy isn’t working so well. Interest rates around the developed world are either negative or near-zero and still growth is stuck in a rut. That’s got some experts looking to fiscal...

The Market’s Message: Go Short, or Variable

“What the inflation market is currently pricing is an incredibly benign inflation trajectory in the next 10 to 20 years.” Martin Hegarty, head of BlackRock’s inflation-linked bond portfolio in New York, told that to Reuters this week in a story entitled Markets predict decades of inflation frustration. “We are pricing a…rate that implies the Fed will miss its inflation target...

UK/EU Fuss Keeping a Lid on Rates

Brexit Fallout: Non-Radioactive (So Far) It’s been 12 days since Britain voted to cancel its EU membership. That news dropped a bomb on the market but thankfully it wasn’t nuclear. So far, the pundits have brushed off any adverse effects for Canada. But dismissing Brexit’s impact on mortgage rates would be premature. For one thing, it will continue causing insecurity among...

Brexit and Mortgage Rates

Traders around the world had their bets in the wrong place. They thought that the UK would stay in the European Union. But in a cliffhanger vote, Brits decided otherwise. Now the world is realizing just what a big deal this is (see BMO’s note). For the UK, the world’s 9th biggest economy, ramifications include a historic collapse in the pound,...

Red Alert on Fixed Rates

Borrowers have been blessed with mortgage rates that look like promotional savings rates: 1.99%, 2.25% and the like. But now, sadly, those rate bargains are in jeopardy, at least for a while. The tide of bond yields is rising, and when that happens, so go fixed mortgage rates. Five-year fixed rates below 2.34% may be on the endangered species list,...

Rate Surveillance: Another BoC Non-Event

An Idle Bank of Canada If you forgot about the Bank of Canada rate meeting yesterday, you’re one of many. Nobody made a big deal about it because nobody expected anything earth shattering from Poloz’s lips. The takeaway is that prime rate remains stuck at 2.70% and it could stay that way for months. The Bank did lift its Canadian growth estimate,...

Rate Surveillance: Yields Drop, Forecasts Drop, Rates Barely

It got sort of ugly out there this week. Oil prices sank to dozen-year lows, swap rates (which guide fixed mortgage rates) fell to record depths and stocks tanked, before eventually recovering. Often times, market action like this leads to cheaper mortgages. But these days lenders aren’t about to drop their pants on rates. They have other problems. Investors are getting scared. Check out this measure of credit risk in the interest...

The Bank of Canada Countdown

A feeling or state of nervousness or excitement caused by wondering what will happen. That’s the definition of suspense. And that’s what the financial community is feeling right now about Wednesday’s Bank of Canada rate meeting. Will “The Poloz” chop the overnight rate in half, from 0.50% to 0.25%? Or will he stick in “wait and see” mode, and hope the devalued loonie...