It’s incredible how much can change in a few short weeks, Up until January it seems like nothing could stop the Canadian economy, but with disappointing January and February job figures, lower than expected GDP and the threat of a trade war things are not looking as upbeat. All this disappointing news has caused bond yield to decrease over the past three weeks and the Bank of Canada to take a cautious view on future increases.
The Bank of Canada announced on March 7th that the Bank of Canada rate would remain at 1.25%, more importantly they signaled that there will be a slight pause to digest the recent economic and political news. Given this the market expects only a 21% chance of an increase over the next two meetings (March and April) and the changes of seeing prime over 4% in 2018 are looking less and less likely. The big surprise in the mortgage market is that there are many lenders offering prime – 1% or better on insured and insurable mortgages, with rates as low at 2.20% (prime – 1.25%), many consumers are taking the variable option with such deep discounts. I see the variable rates flat over the next few months until we see which direction the economy is heading.
Based on the February job report and President Trump threatening a trade war, bond yields have decreased over the past 30 days by 20bp from their recent highs and 5 year fixed rates have been lowered at many Monoline lenders between 10bp and 15bp. I still expect some downward pressure on yields over the next few weeks and can see another round of rate cuts as lenders fight for volume due to the slowing housing market, thus as a whole I can see rates flat to slightly lower over the next few months.
Shawn Stillman, CPA, CA
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