To get a sense for the perceived financial system risk out there, take a look at LIBOR. LIBOR is the rate at which banks lend unsecured funds to each other. It’s risen 29 of the last 30 days.
The good news definitely seems sparse beyond Canada’s borders, but fear is often fleeting. While the current market environment is grim, sentiment may be considerably different next week.
Today’s concerns must also be set against a strong rebound in Canadian economic performance. When the problems above are resolved, the BoC will likely resume focus on Canada’s robust domestic indicators.
Sidebar: The last time 5-year yields were this low was March 5. Posted 5-year fixed rates were 5.39% at the time. Today, they’re 5.99%—60 bps more! Granted, there’s more of a risk and rate-hike premium built into today’s rates, but 60 basis points seems extreme.