Over the past 30 days, there has been a mixed bag economic news and all eyes are on next Bank of Canada meeting. The market believes there is only a 50% chance of the BoC increasing rates; however, I expect they will raise rates by 0.25% and then hold off for the rest of 2018. If the do decide to increase rates it is expected that fixed rates only go up by 10bp or less over the next few weeks.
Given the uncertainly in the Canadian economy, it looks like the number of rate increases are going fewer and father apart, with most banks only expecting only one more in 2018. The big surprise in the mortgage market is that the major banks are still offering prime – 0.8% or better, and monolines are still offering rates as low as low at 2.16% (prime – 1.29%) on insured and insurable mortgages. Many consumers are taking the variable option with such deep discounts. I still see the discount offered on variable mortgages to remain flat over the next few months.
Based on a flat job report, slowing GDP, a trade war with the US and NAFTA slowly going over a cliff there are more uncertainties then in May, and as such bond yields fell 40bp from the May 17th high. As bond yields are down from their mid May highs I can see lenders raising rates by 10bp or less over the next few weeks.