Money market traders are now placing odds at 60% that the Bank of Canada will cut its key lending rate by May 2012. Yes, you read that right.
That’s according to the latest implied overnight index swap (OIS) rates, as calculated by WestPac on Thursday night. (The OIS market is where traders bet billions of dollars on future rate direction. OIS prices are highly volatile and subject to change/error.)
Few economists currently agree that prime rate will actually fall in 2012. Nevertheless, this drastic change in market sentiment is a caution to not hold our breath for multiple rate increases.
At the moment, we’re witnessing an overwhelming consumer preference for variable-rate mortgages. Many other brokers and bankers are seeing the same thing.
This trend shows no sign of letting up in the short term and it clearly favours banks. That’s because banks have lower variable-rate funding costs than most (but not all) credit unions, trusts and non-banks.
If this trend persists, it could certainly boost the market share of aggressive deposit-taking lenders in the broker channel. Those lenders include Scotiabank, National Bank, ICICI, and Coast Capital to name some.
Rob McLister, CMT
Last modified: April 29, 2014
(The OIS market is where traders bet billions of dollars on future rate direction. OIS prices are highly volatile and subject to change/error.)
what purpose does this serve for society? I’m actually curious and not trying to be sarcastic. Does it actually do anything or is it like people gambling at the racetrack?
They are used mostly for hedging interest rate risk.
It is interesting to note we are always drawn to predict the direction of interest rates…. and once more we realize rates cannot be predicted, not short term, less long term…
Sure, rates can be predicted! Sometimes the prediction is off a little is all.
Reminds me of the great line from the wire which was a great show “We used to make things in this country, now we just reach our hand into our neighbors pocket.” Something like that anyway. We’ve invented ways of legally stealing from our neighbor and not thinking twice about it. I know my parents have taken a hit over the years and they’ve never tried to steal from anyone but someone stole money from them.
of course they could put their money in a gic paying 0.075% which is less than interest and is the same as bleeding to death slowly
If you take the forecasts from the senior economists at all the major banks and base your prediction as the opposite of what they are saying. You’ll be right 9 times out of 10. ;)