Falling Back to Earth: Fixed mortgage rates are at multi-week lows. In the last week, multiple big lenders have cut 5 to 15+ bps. The key reasons:
rates are descending in the fixed-income market (where lenders fund most of their fixed-rate mortgages), and
credit spreads are narrowing (meaning lenders are paying smaller risk and liquidity premiums to investors to obtain mortgage capital). As just one example, the cost for big banks to raise 5-year money in the bond market—as compared to the Government of Canada—is down roughly 85 bps from the peak on March 23.
Better Variable Discounts to Come: There’s no way to know when lenders will once again widely offer prime – 0.50% or better. But they will. One leading indicator of floating-rate discounts, 3-month bankers’ acceptance yields, have improved 53 bps month-to-date. Barring the COVID-19 crisis worsening beyond expectations, that improvement should soon translate into better variable discounts for new borrowers.
BoC in Neutral: The Bank of Canada makes its next rate announcement at 10 a.m. ET Wednesday and virtually no mainstream economists expect it to alter rates.
Rate Bearish: “The three critical sectors for the Canadian economy are housing, banking and energy. All three face significant pressure.”—Veritas Research, via The Globe and Mail.
Stocks Think the Worst is Over: The stock market is one of the better predictors of the economy. It’s notable then that since the 1930s, among all bear markets where stocks rallied 50% from the lows (like we’ve seen this month), in not one case did the U.S. stock market retest its lows (Source: CNBC).
Slippery Crude: Oil keeps sliding despite Monday’s historic production cut. It’s now lingering near the psychologically imperative $20 level, seemingly waiting to test $19 or less. The longer it closes below $20, the more bearish it’ll be for Canada’s economy…and interest rates.