rates
04. rates
A downward trajectory in interest rates has provided some relief for borrowers, and will continue to do so through 2019.
DIAMONDS ARE FOREVER; SO, TOO, MAY BE LOW BOND YIELDS
What a difference a few months make. While the latter half of 2017 and most of 2018 were dominated by prognostications about how many interest rate increases we’d see in 2019 and beyond, the predictions have been flipped on their collective heads. The question in the near-term is no longer “how much higher will rates go?”, but rather “how much lower will bond yields fall?” and “will central banks soon beginning cutting rates again?”. Before anyone gets too excited at the prospect of cheaper money for longer, we are behooved to note that interest rates move lower when it is expected that economic growth will continue to slow. Indeed, at the root of the recent halting of central bank rate-increasing regimes and the 7-month decline in bond yields are a number of factors, including trade tensions and geopolitical uncertainty,
that are conspiring to drag global economic growth downwards. For now, global GDP continues to expand, as it does in Canada and closer to home here in British Columbia. For employed borrowers, then, lower interest rates mean less financial strain. More specifically, the Bank of Canada (BOC) continues to maintain its overnight target rate at 1.75%, as it has since October 2018, while five-year government of Canada (GOC) bond yields have declined by 40% since October. This in turn has pulled CMHC’s 5-year conventional mortgage rate down 6% since January alone; some chartered banks in Canada are even offering 5-year fixed-rate mortgages in the neighbourhood of 2.75%— a rate not seen in two years. In a world characterized by growth that will be lower for longer, expect rates to follow suit, even if there are a few burbles along the way.
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