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- Tiff Gets the Nod: Canada’s most important banker will soon be Tiff Macklem. Effective June 3, he’s taking over for Bank of Canada Governor Stephen Poloz. We’ll hear Macklem at BoC rate announcements for the next seven years and already he’s moving markets. Following his appointment Friday, he spoke of:
- downside risks to the economic recovery
- the fact that negative interest rates are a monetary policy option
- the need for “unprecedented responses.”
The Canadian dollar promptly sold off after that. Albeit, Macklem said he was “quite comfortable” with the overnight rate at 0.25% given the “current situation.” He suggested he’d be “hesitant” to add “a new source of disruption” (like negative rates) “when you’ve already got a disrupted financial system.”
- Three Records in a Row: Canada’s 5-year yield closed at a new all-time low Friday, its third consecutive record close. That coincided with a slew of new fixed-mortgage rate cuts. Big bank 5-year fixed rates are down 40+ bps since the COVID-crisis peak five weeks ago. We are now just a stone’s throw from sub-2% 5-year fixed rates. If we get there, default-insured mortgages will break 2% first. And if that happens soon, the differential between fixed and variable rates could become almost non-existent. That would likely shift a portion of variable-rate business back to fixed rates.
- March Burst: The bank of Canada reports that mortgage credit increased at a robust 8% annualized pace in March. That growth should wane in April given the massive drop in home sales.
- Big R/E Week Ahead: Major real estate boards, including Toronto’s and Vancouver’s, are about to give us the first official glimpse of home prices and sales for April. They may not be pretty, but in the event they’re “less-bad” than expected, it could add positive psychology to a nervous market.
- “Flesh Wound”: That’s what the 2009 recession will look like compared to the recession that’s upon us, says Allianz Chief Economic Adviser Mohamed El-Erian.
- Did You Know?: Section 8 of the Interest Act prohibits lenders from jacking up the rate on borrowers who default on their mortgage. More on that.
11 Comments
hey Spy and folks,
Do you think we will see zero or negative rates soon from new BoC governor?
Hi David64, Doubt it will happen soon (at the June 3 or July 15 meetings). And there’s a better than 80% probability it wouldn’t happen this year, if you believe implied pricing in the bond (overnight index swap) market.
Canada will have negative rates before the end of Macklem’s term. You heard it here first.
I’m refinancing my mortgage right as the renewal is coming up in 2 weeks. Should I just focus on variables rates now?
Thanks.
Hi RJF, Depends on which term is most suitable for you.
+1 to RJF’s comment – with fixed rates nearing the sub 2% range and with deflation expected to take hold for the foreseeable future, are variables rates (assuming the spread exceeds p-.5) the way to go?
Hi John, Unfortunately, generalizations can’t be made given that many people are in different boats financially. But see our May 4 story on this.
Hello, is it worth to do an early renewal and take the $4000 penalty to get a sub 2% rate from 3.19% rate on 5 year fixed, with 2.5 years left on term?
Hi Dave, Your post left out some key details needed to answer the question. Best bet is to call a broker and ask them to run the numbers.
In regards to the variable or fixed route, the issue I’m considering is whether the prime rate will drop and if so, by how much. I don’t think the BoC will go negative as it hurts the banks too much. History shows that prime has been slightly lower. However, with the overnight rate already near zero, how much further lower could prime go if the BoC rate stays positive.
Hi Ian, Here’s what I can say with high assurance. If the BoC doesn’t cut again, prime rate won’t fall again.