Bad News Is Good News For Borrowers

The bad news:  U.S. and Canadian employment numbers both disappointed. The story

The good news:  Bond yields fell today to their lowest point since April 2009, which means the fixed rate party continues.

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interest-rate-news What’s Next:

  • Very few analysts now expect an October 19 BoC rate hike
  • Discounted fixed rates may drift lower (perhaps 5-10 basis points in the next week, barring a rebound in yields).
  • Today’s news has minimal effect on variable mortgages, apart from prime staying put for a while. Variable rates have inched as low as prime – 0.85% for a no-frills (watch those no frills mortgage restrictions!).
  • We’ll see if the big banks throw us a bone and drop posted fixed rates. The Big 5 are operating on a fat 352 bps spread (between the posted 5-year rate and bond yields) but they’ve been reluctant to move since August 23rd’s cut to 5.39%.

Rate Commentary:

  • "The market had basically priced the Bank of Canada out (of further rate hikes). This won't do anything to change that.
        — Doug Porter, BMO economist (Reuters)
  • "This (employment) report is not disastrous. Certainly it supports the growing market participants' view out there that the Bank of Canada will take a pause on October 19."
        — Sebastien Lavoie, LBC economist (Reuters)
  • Economic growth should return to 2% by mid-2011, which would “give the Bank of Canada some justification in raising rates. But even then, we don’t see rates going up quickly.
        — Krishen Rangasamy, CIBC economist (Bloomberg)
  1. Hi Mensa, Thanks for the note. I heard RBC is dropping its discounted rates too, so that’s good. (I think they’re coming down 10 bps but I haven’t seen anything official.) -Rob

  2. Rob- Yes 0.10% across the board from all terms 6month-10years. With a new 1 year special rate option at 2.80%

  3. We have all been hoodwinked since the spring, when they were calling for the rates to go higher on bonds and also on prime rate. What has happened though is the complete opposite. It is pure manipulation and horse $%#@. If I had to go back no way would I have locked in at 3.75 for five years, I could have kept my variable, but no had to listen to all the pundits, who are always wrong!

  4. Derek, you’re right, we did get screwed if we listened to the pundits but it’s through no evil intention as you make it out to be.
    It just goes to show one basic thing – markets are unpredictable. Nobody knows what they’re going to do next. Bottom line.
    Mensa – thanks for the info, how do you know, do you work for RBC?

  5. I just confirmed that RBC will be cutting rates as well. Takes effect tomorrow I believe. It was communicated earlier today.

  6. We should know better than to listen to the pundits. You have to read read read talk talk talk to people in the industry before making YOUR OWN decision. Next question: the pundits are saying house prices will fall 7%. Who believes this given the present interest rate environment?

  7. Hey Rob,
    It seems like groundhog day. The news changes a bit but rates still are low (just like what I talking about back in 2007).
    Check out Comstockfunds.com They made over 54% in 2008! Anyway they are talking about currency wars US/Europe vs China etc. Might want to look at it.
    cheers,
    Brian

  8. I am one of the few people who commented here a few times about the big banks etc… trying to get people to lock into fixed mortgages . I stayed variable and am still getting 2.75 with pc financial. I’m not complaining because that rate is still very low and better than most fixed rates locked in for five years!

  9. Not sure what you’re upset with “pundits” for. First of all, you had to make the decision to change your rate. Pundits weren’t responsible for that. Second of all, not all analysts would have recommended locking in, so it’s inaccurate to treat them as a single, homogenous group.
    Market timing (which you seem to have attempted) is a mug’s game. There’s no sense in getting angry because the analysts *you* decided to listen to don’t have the ability to accurately gauge the future.
    And in the end, you’re getting exactly what you signed up for – a FIXED rate, and a historically excellent one, at that.

  10. RBC’s lower rates are now posted …. no press release, probably for political reasons.
    Hallelujah, about time they passed on 10 bps of the 40 bps drop in yields since they last cut!

  11. Hey Derek, You’re very selective with your hindsight. Five year fixed mortgages were a rational choice based on the best information at that time. Canada was putting up big GDP and employment numbers and it was reasonable to assume rates would shoot higher.

  12. Derek, unfortunately its always the same – the so-called “experts” jump up and down about how Rates are about to soar and best to lock in now because these are ‘once in a lifetime emergency levels’. Yeah, right. Once in a lifetime has now occured constantly for about 2 years. Anyway, dont be too upset. You’re fixed rate is still a decent one. I’m still stuck in a 5.69% 5 year fixed rate which I was advised was the best option at the time. Yeah, you can imagine how happy I am now!!
    Good luck to you. I’m hoping rates stay this low for another 2 years and then finally i can get a low rate :)

  13. You’re off base to say it’s “always the same.” No one has ever seen a rate market or economy like this. The entire bond market plummeted last spring because the economy appeared on strong footing. It wasn’t just a few “experts” who thought that.
    If you think you’re smarter than the “experts” then maybe you should be a professional economist and put your predictions where your mouth is.
    On the other hand, if you were really that smart why did you take a 5.69% fixed? You’re good at hindsight. You should have known that a variable rates would save you more.

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