Bank of Canada Rate | Page 3 | General financial discussion | Discussion forum

Anything “foreseeable” (aka market expectations) is already priced in. Markets will react when something unforeseeable happens. And that could go either way.

I tend to buy bonds based on my asset allocation (70% stocks, 30% fixed income). Have been buying them for most of this year because equities have been strong. Started buying equities after the recent dip. Now it's back to bonds as equities recovered.

Loonie said
Are any of you buying bonds or bond funds, given foreseeable ongoing rate drops? I find this stuff a bit confusing.  

Bond prices move inversely with yield so as bond yields continue to drop, there will be some movement in bond ETF NAV price upward. The key issue though is bond yields for bonds 2+ years until maturity are market based and while they do respond to changes in the BoC overnight rate, they can have a mind of their own.

If you go to https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/ and select the first two lines - avg yield 1-3 years and avg yield 5-10 years and deselect everything else... and pull the interactive bar at the bottom left so that you get years as far back as 2005 or so, you will notice bond yields have dropped significantly since Dec 2023. That means bond ETFs whether short term ones like VSB, or medium term like VAB, have already gotten much of the impact of decreasing interest rates.

It is not clear how much further bond yields for the 1-3 year and 5-10 year categories will continue downward despite what BoC does for short term overnight rates. Will yields fall back to as low as 2% eventually, or might the market fear another bout of inflation in a year or so, causing those longer term yields to stay closer to 3%?

No one knows but my current belief is at least half of the reduction in bond yields has already occurred and the horse may already have 2 hooves outside the barn. The 'juice' may be over by the end of 2024.

I thus would not be actively buying bonds at this time given my concern that inflation has not necessarily been beaten and 3-10 year bond yields won't decrease much from this point forward. I would rather continue to take my chances with current 3-5 year GIC rates.

canadian.100 said
GICs now in the 4% range  

Where is that? In Elbonia???

I currently see GIC at 5.25% 1year

CAD said

canadian.100 said
GICs now in the 4% range  

Where is that? In Elbonia???

I currently see GIC at 5.25% 1year  

I am not seeing any 5.25% GIC for 1 year. Kindly advise who the issuer is. What I see are rates generally from 4% to a high of around 4.7% for 1 year.

Loonie said
As of Monday of this week at least, Hubert had the one year quarterly GIC at 5.25 average (5.35 compounded). I cashed in and rein vested previous quarterly as I will likely keep it there the whole year and would expect the rate in effect when the previous GIC matures in Feb to be lower. I appreciate the comments.
I made a lot of money on long govt bonds in the '90s but this is not then. Like AltaRed, I feel inflation is still a significant risk. And because of my age I only deal in 1 and 2 years, could possibly stretch to 3. Could do a bond ETF if it seemed like a good idea, but it sounds like it probably isn't?  

Ok thanks - so Hubert/Access is the issuer. Hubert was so great to deal with in the past (that was then!) but certainly not now. I have no interest in dealing with Hubert/Access and their archaic processes and certainly no interest in bond ETFs. So according to the chart here the GIC one year rates are all under 5% (except for that quarterly avg 5.25% Hubert term starting @ 4.5% for the first quarter.) If I want a one year GIC, guess I could do Saven 4.9, or Motive or Oaken 4.7 and then the rates go lower. Saven is not user friendly so my choices would be Motive or Oaken 4.7 or Tang 4.6.

AltaRed said
It is the direction of this bond yield curve https://www.worldgovernmentbonds.com/country/canada/ that gives me pause. How much lower in yield can 5+ year bonds go? 50bp? We know the short end is going to drop to the 2.5-3% range eventually and un-invert the yield curve, but one could argue the 5+ year yield is about as low as it can get.  

5y at sub 3% only make sense if O/N going down to sub 2% or lower, which I dont think it will. I will be surprised if BoC will even take O/N to less than 3%.

5y at 3.7-4% while O/N get down to 3% is what I foresee once its all said and done.

Market is so close that if another small dip occurs within next 24-36 hours, CoB could drop rate another 50 pts, otherwise, it will simply be a 25 pt drop on Wed.

As for Feds, they will most definitely drop 50 pts, based on market condition, not by choice, though they will probably spin it that way.

Sadly, this will likely trigger more inflation.

mordko said
A larger cut could scare the markets. Perhaps the Fed knows something we don’t…  

I've often thought about the psychology that plays a part in central bank interest rates moves. A significant drop could be read as the central bank panicking, which could then cause a domino effect in the markets.

RetirEd said

. . .

Without a crystal ball, I suspect a "soft landing" scenario.  
.

Glad to be of service

Dean

P.S.
And 'Yes' ... Ditto on that "Soft Landing".

smayer97 said

At this rate, expect at least a 50 pts drop (maybe more) in Fed rate at next meeting.  

zero chance of >50, mark my words.

if you think 100% chance of 50 or more, give odds and I will wager against that too 🙂