Wanna know where rates are going? Look at 2 yr bond yields.
Probably the most popular question asked is, “where are rates heading?” Or “when will they go up?” Let’s face it, if you have a mortgage or are invested in real estate, then you better know the answer or understand what affects rates. After all, interest rates can make or break a housing market.
We decided to take a few minutes to explain how you can follow the indicators that affect interest rate movement…. We won’t make you a Financial Expert, but you will gain a better understanding of what affects rate movements…
My first suggestion is to stop paying so much attention to the news or TV… (apologies to my media friends)… but the wild headlines are there to grab your attention… it’s not that difficult to understand…
Last week, the Bank of Canada met for the 5th time in 2012. There are 8 scheduled meetings each year… (and by the way, this helps to keep rate movement and monetary policy more predictable…. the more predictable a Govt is, the more stable it’s economy is.) The Key Rate is set during these meetings… this rate directly affects Variable rate mortgages…. No surprise, the Bank of Canada Governor, Mark Carney, kept the rate unchanged.
That means Bank Prime is still 3.00%. And with more negative economic news from Greece, Spain, other parts of Europe, the U.S, and now Canada, it’s safe to say rates should remain flat for some time……(remember, bad economic news usually means rates will drop or stay low).
So the Bank of Canada’s Key Rate (also known as Target Rate or Overnight rate) directly affects Variable rate mortgages… but indirectly, they also affect Fixed Rates. A better short term indicator to watch is the 5 yr Govt of Cda bond yield. We watch this to see where fixed rates are headed in the short term… say, over the next few days or or few weeks. A good long term indicator for Fixed rates is the 2 yr Gov of Cda bond yields. Financial Experts pay very close attention to this index if they want to know where rates are going in 6 months or longer. And at present, the 2 yr yields are very low…..
Bottom line, rates should remain low for some time… Not so hard to follow, right?
And not to confuse you, but historically, Fixed rates usually go up ahead of Variable rates…. so we need to watch Bond yields together, with the Bank of Canada’s Key Rate to gauge where rates are going…
Hope this helps… and as always, feel free to call or email me…
416 224 0114
Interest rates, Money saving tips, Mortgage Rates, Mortgage Trends
Steve Garganis View All
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.
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