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Taper Talk Tapered

FedThe U.S. Fed surprised the markets yesterday by leaving its $85-billion-per-month stimulus program intact.

Most analysts expected a reduction (“tapering”) in the Fed’s bond buying, due to hints from the Fed itself. But the U.S. economy is still not self-supporting. Its recovery is ironically being slowed by the Fed’s own jawboning—which has driven up long-term rates and created economic drag.

All of this “taper talk” matters to Canadian mortgage shoppers because of the intimate link between the U.S. and Canadian economies. Canadian bond yields, which lead fixed mortgage rates, dove on yesterday’s announcement. As of this writing, the benchmark 5-year government bond is down to 2.01%, 15 basis points off yesterday’s high.

If yields break today’s 1.99% low there could be improvement in deep-discounted fixed rates. The number to watch on the upside is 2.17%. Above, that, expect higher long-term fixed rates—other things being equal.

Variable rates, which largely hinge on the Bank of Canada’s overnight rate, are going nowhere fast.

  • Typical discounted 5-year fixed rate:  3.49% +/-
  • Typical discounted variable rate:  Prime – 0.45% (2.55%) +/-

Rob McLister, CMT