The market consensus now seems to be that yields will flatline or fall until year-end, given Obama’s second-term presidency. (Bond yields dictate fixed mortgage rates, most of the time)
However, there’s one dark and lingering cloud, that being the impending budget crisis (a.k.a. fiscal cliff). With no resolution in sight, investors will only take so much risk—preferring to park money in relatively safe U.S. Treasuries and keeping yields low in the process.
The wildcard will come closer to year-end or in early 2013. That’s when investors must decide if the U.S. will solve its fiscal deadlock or face a second debt downgrade, loss of investor confidence and/or stimulus-triggered inflation, any of which could potentially push up U.S. yields.
In the meantime, barring the unexpected and until sufficient U.S. growth seems likely, Canada’s key lending rate (and prime rate) probably won’t stray much above present levels.
Rob McLister, CMT
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