Bankers Acceptance Rates Move Up

Bankers-Acceptance-rate-increases People with millions of dollars at stake think the Bank of Canada is four months away from its first rate hike in over 2 1/2 years.

Bankers’ acceptance (BA) yields are at an 11-month high.

BAs influence variable-rate mortgage pricing and they’ve been dormant for almost a year.

Now, the interest-rate market is waking up.  Traders are pricing in a 1/4 percentage point rate increase on July 20.

July 20 is the Bank of Canada’s first interest rate meeting after its conditional moratorium on rate hikes ends.

Traders aren’t always right, but opinions backed with money usually mean more than opinions without.

Economists surveyed by Bloomberg are calling for a 1.25 percentage point jump in Canada’s key lending rate by year-end (from 0.25% today to 1.50%).

More:  Rate Hike Speculation Grows

  1. from .25 to 1.50 by yr end? It is amazing how quick things can move up, but how slow to move down……sort of like gas prices.

  2. Come on Jarrett, reality check here:
    Rates came down EXTREMELY fast … from 3.00% to 0.25% in six months (October/08 to April/09).
    They won’t go up at that pace.

  3. Dan, they had no choice but to drop rates that fast all things being considered.
    But they best be sure they do not move up to fast. The US is at least 2-3yrs away from recovery, and with our 2 countries so linked, the value of our $ right now….they have to move smartly and be sure.
    It was just a month ago, there was talk of a double dip recession…..just do not want knee jerk reactions

  4. Jarrett is correct, they need to keep inflation in check, but they need to keep our dollar no higher than the american dollar, otherwise our economy is in trouble. It will be interesting..

  5. The dollar isn’t a concern for the Bank of Canada outside of its impact on inflation.
    They have one target and one target only: inflation.
    Al R

  6. Hi wwllyygg,
    Love the original name. ;)
    As we understand it, this rate applies only to purchases, and only if you use Astrum’s real estate agents.
    I wasn’t able to find anyone who knows about Astrum Financial or its principles.
    Rob

  7. Just like the CMHC has one target – Affordable housing for Canadians, and we all know how that’s panned out. It’s a little naive to think the Bank of Canada is going to stick by it’s mandate of an inflation target no matter it’s effect on the economy. Having said that a 0.25% rate increase is probably already priced into the dollar.

  8. Think of the upside here. When prime goes up, the increment below prime for variable rate mortgages will go up too (think Prime MINUS 0.75%) because the spread will wider and give lenders more room to drop that increment. My advise to folks taking a VRM is to go short term, not long term, and take advantage of the drop below prime in a year or three.

  9. Except that’s not actually the case… If you look at CMHC’s corporate plan, they list three objectives and seven strategic priorities, only one of which is directly related to affordable housing.
    Besides, you’re putting the cart before the horse… An explicit inflation target is the best way to support long-term economic growth, and acts as an automatic stabilizer. If the BoC were to start monkeying around with interest rates simply to support short-term economic growth, it’s going to cause long-term economic problems. If you think they’re really conflicted about this, I’d invite you to read up on the controversy surrounding the actions of former BoC governor John Crow.
    cheers,
    Al R

  10. The dollar at par (or higher)
    Our Government putting up the prime rate. This will result in an even higher dollar.
    Will that help our business selling to other countries or ??

  11. Hi David,
    Appreciate the positive thinking. :)
    One point of clarification: The prime – BA spread typically guides variable-rate pricing. Usually BA yields rise 1-3 months ahead of increases to prime. So there’s a good chance the spread might not widen.
    That said, at prime – .50% today’s spread above BAs still leaves a little room for further discounting.
    Cheers,
    Rob

  12. Kenny,
    First, to correct you, the government will not raise the prime rate – it will be the Bank of Canada, which is an independent institution.
    With regards to the dollar, on the bright side – our businesses will be better-positioned to make investments in productivity-enhancing capital.

  13. Technically the Bank of Canada does not raise prime either. They raise the overnight target rate.
    Banks are the ones who set prime rate.

  14. So the low interest rate of 0.25% was set strictly to meet an inflation target and not to support short-term economic problems? Why has the BoC promised not to raise rates till July 2010 when CPI has risen from a low of -1.0% in July of 2009 to a 1.9% reading in Jan. 2010? According to these numbers from Statistics Canada http://www.statcan.gc.ca/subjects-sujets/cpi-ipc/cpi-ipc-eng.htm, we haven’t been in deflation for at least 5 months. Obviously, the rate has been kept low to spur economic growth with an inflation target a distant second. Ideologically your right, the Boc target should be inflation only, but here in the real world things don’t always play out like they do in text books.

  15. Inflation and economic indicators (i.e. capacity) aren’t independent variables. Nevertheless, the BoC targets inflation. They will do what they can to support growth, but *only* to the extent that it is congruent with the inflation target.
    If you look at the BoC’s latest Monetary Policy Report, they state they they don’t expect inflation to hit the 2.0% target until the third quarter of 2011, so they have room to manoeuvre. In other words, they are not compromising the inflation target at all. If inflation were running hotter, rates would already have been hiked.
    The US Federal Reserve operates differently, and I would agree that their mandate is less clear.
    Al R

  16. Rates have been climbing slowly but surely back to normal levels. We’ll see how far they get before they’re slowed down due to the still-ongoing slump. It might be a year or two before they get back to pre-crisis levels.

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