Essentially, there’s been a sell off of Canadian Bonds causing the yields of the Bonds to rise.
When Bond yields rise they simultaneously shrink the spread between yields and Bank interest rates. When bond yields rise, so do interest rates.
Here’s one easy way to conceptualize this …think about two walls closing in on each other …when the encroaching wall becomes too close, the other wall expands.
As bond yields rise, they shrink the profit margin Banks make. As a result, interest rates rise so Banks retain their profit margin.
Just like ANYTHING in our economy, the cost is passed onto the end user.
Two major things:
I’m seeing 15 basis point increases to interest rates. RBC released an article last week stating their rising as much as 35 basis points higher! Yikes.
I think it’s beneficial to have a simple context of where interest rates are, relative to the past 5, 10, 15 and 20 years. This helps provide me perspective.
Here’s my truth …I have no idea!
Really, I don’t recall anyone anticipating this bond sell off. I don’t recall the US election polls predicting a Trump Presidency. I don’t remember people anticipating Britain voting to exit the European Union. Even the last Mortgage rule change announcement, in mid October, caught many people by surprise.
What’s next? I don’t know. What I can do is reasonably look at the data I have today, look at the data of the past and make my best judgement moving forward.
Our future is going to be a mix of opportunity and difficulty. Really, it’s been this way since the beginning of recorded history. Opportunity mixed with difficulty. Count on it.
If you are thinking of purchasing a home, refinancing or renewing your Mortgage in the next 3-8 months, I think TODAY is best to initiate that process with my teams services. Email or call me directly.
Cheers,
C. Moore
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