CBC reports that the U.S. Federal Reserve may cut interest rates by 1/4% tomorrow in light of the fear gripping North America’s financial markets.
So far, we haven’t seen much new speculation on the Bank of Canada cutting its key lending rate. Bloomberg, however, says “a rate cut in the U.S. would put pressure on the Bank of Canada to consider following suit.”
In a statement earlier today, the BoC said, “The Bank will provide liquidity as required to support the stability of the Canadian financial system and the functioning of financial markets.”
In any case, judging from the bond market today, it looks like fixed mortgage rates could be falling soon. 5-year bond yields plummeted 0.16% today, a huge one-day move and the biggest drop this year.
More from Bloomberg…
I realize this site isn’t meant to cover the broader markets, but celebrating the sudden drop in bond rates in this environment is a little like the captain of the Titanic announcing that there is plenty of ice in the bar.
Hi Tom,
Thanks for the comment. As you note, CMT focuses primarily on the mortgage implications of events like this, and not the broader market impact (unless it affects the mortgage market). There’s enough broad market coverage out there already. That is why this story reports (not celebrates) the decline in bond yields and, potentially, the decline in mortgage rates.
As for the analogy, Canada’s mortgage market did not just hit an iceberg. The waters may get choppy but the ship is still very much afloat.
Take care,
Rob
Researching the history of both Canadian and US economies, going back 10 years, we can see a clear trend that should also be used as a warning sign to the Canadian bank to not follow up on the US economy and activity. The trend shows that regardless of performance the Canadian economy followed the US economy, up and down, only when the Canadian bank walked same paths as the US bank.
Update as of Sept. 18
Risk premiums in the mortgage market are increasing once again. Counter to intuition, bond yields have gone down but mortgage rates are creeping up among some lenders!