27 May

Stand Pat Bank of Canada

General

Posted by: Drummond Team

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Stand Pat Bank of Canada

As was widely expected, the Bank of Canada left overnight rates unchanged at 0.75 percent and reiterated earlier comments about the likely trajectory of the Canadian economy. The Bank is more optimistic about the economy than private sector forecasters, believing that a rebounding U.S. and global economy will spur Canadian business investment and exports in coming months.

The problem is that business investment growth has declined sharply in the wake of the oil price rout and ensuing collapse in business investment in the oil patch–a situation that is not likely to improve anytime soon.

In addition, a marked further improvement in Canadian net exports likely awaits a further decline in the Canadian dollar, which has strengthened a bit recently with the uptick in oil prices. Although the Bank of Canada would never admit it publicly, they would welcome some slippage in the loonie to help boost trade. 

The Bank continues to aver that “the underlying trend of inflation is 1.6 to 1.8 per cent, consistent with persistent slack in the economy”. They will certainly continue with the current level of monetary accommodation until the economy moves closer to fully employment and inflation moves back to the midpoint of the 1-to-3 percent target band, which is not likely until next year. 

The Federal Reserve, on the other hand, will like raise rates in September. Nevertheless , the Bank will remain on the sidelines as the Fed rate move will no doubt be anticipated and put downward pressure on the Canadian dollar. 

Ironically, the Bank has no direct control over longer-term interest rates, which have risen significantly in the past month or so. Five-year government bond yields, which are closely linked to domestic mortgage rates, are determined by global market forces. These yields have risen in the U.S., Canada and elsewhere from a considerably overbought position, steepening the yield curve. Thus, the Bank will get no help from credit-sensitive spending to meet its forecast for stronger growth for the rest of this year.  


Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

22 May

DLC Chief Economist Dr. Sherry Cooper Discusses Bond Rates and Mortgages on BNN

General

Posted by: Drummond Team

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DLC Chief Economist Dr. Sherry Cooper Discusses Bond Rates and Mortgages on BNN

Did you catch Dr. Sherry Cooper on BNN this morning? This was another 7 minute interview where Sherry was able to make sense of these difficult issues.

Bond markets have tanked in the past several weeks, driving yields upward. Hundreds of billions of dollars have been wiped out in global bond markets. Bond yields in Canada have risen 50 basis points (bps) in the past month. Will Mortgage rates follow? Sherry Cooper, Chief Economist, Dominion Lending Centres joins Frances Horodelski to discuss.

Dr. Sherry Cooper on BNN
Once again, when the media needs a thought leader to comment on Canada’s economic and housing markets, they turn to Dominion Lending Centres and our Chief Economist, Dr. Sherry Cooper!
14 May

Why Are Bond Yields Rising? Will Mortgage Rates Follow?

General

Posted by: Drummond Team

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Why Are Bond Yields Rising? Will Mortgage Rates Follow?

Bond markets have tanked in the past several weeks, driving yields upward. Hundreds of billions of dollars have been wiped out in global bond markets. Ten-year government bond yields in Canada have risen 50 basis points (bps) in the past month as Treasury yields have jumped 32 bps. The rate increases in sovereign European bonds have been even greater, up roughly 60 bps for core Europe, albeit from extremely low levels. At today’s postings, 10-year Government of Canada bonds (GOCs) yields are at about 1.80% while 10-year Treasuries are at 2.24%. 

Why Are Bond Yields Rising? Will Mortgage Rates Follow?

In contrast, shorter-term yields are little changed. Yields on bonds worldwide coming due in one to three years — those most tied to interest-rate expectations — have remained little changed. Basically, fixed-income investors are signaling that they don’t expect central banks to begin hiking rates anytime soon. Indeed, JPMorgan Chase & Co. added to economic pessimism yesterday by revising down its estimate of U.S. Q2 growth to 2% from an earlier 2.5% on the heels of weaker-than-expected retail  sales data.

This comes a month before the Fed’s next meeting where policy makers will resume their debate over whether the economy is robust enough to warrant the first interest-rate hike since 2008. I don’t expect the Fed to raise rates in June and even a September rate hike is in question. So why are longer-term bond yields rising?

Bond markets were overbought earlier this year with widespread economic pessimism, especially in Europe, and ongoing deflation fears. In recent weeks, however, oil prices have rebounded with West Texas Intermediate (WTI) crude, the U.S. benchmark, climbing more than $17 a barrel from a six-year low of $43.46 on March 17. WTI is currently hovering around $60.00 a barrel. This rise in oil prices has dissipated fears of widespread deflation.

Euro pessimism has also diminished. After spending the end of last year slashing 2015 growth forecasts for the euro zone, economists are raising estimates again. As recently as February economists were calling for the euro zone to grow 1.1% this year. Now they’ve raised their median forecast to 1.4%, according to a Bloomberg survey.

Overbought positions have corrected. Data from the Commodity Futures Trading Commission show investors started 2015 with the biggest bet on U.S. government bonds in seven years. By the end of the first quarter, more than half that position was gone.

Will Higher Bond Yields Lead to Higher Mortgage Rates in Canada?

Probably not, at least for variable mortgage rates, even though interest rate spreads at financial institutions have been further squeezed. This has been one of the most competitive spring mortgage markets in years. Fixed mortgage rates could rise roughly 30 basis points if bond yields rise further. But today’s release of negative producer prices in the U.S. and disappointing retail sales suggest that further rate hikes will be muted. 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca
12 May

Mortgage Renewal Tips

General

Posted by: Drummond Team

Here are some Mortgage Renewal Tips provided by Canadian Living & Boffo

– Don’t sign back your renewal letter or agree to an early-renewal, without doing some online research or contat your mortgage broker
– You should ask if there are any limiting conditions of a low rate offer
– If you are switching lenders, you should ask if it will it change the charge on your current mortgage (Conventional or Collateral Charge)

Canadian Living

Boffo

7 May

Five Reasons to Buy Property or Renew Your Mortgage Now

General

Posted by: Drummond Team

Is this is the right time to buy property or renew a mortgage? Absolutely!…and this piece in BC Living highlights the top five reasons to do so NOW!

Here are the five reasons: the prime rate has dropped; first-time home buyers have an advantage; seller’s market means plenty of options; a timely renewal could save you BIG money; and lenders are competing for your attention.