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Email this8:30 am
April 10, 2022
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I am curious, or is it just me. Seems like for the last year, at least since BoC been raising their rates, the rate differential between regular HISA's is much smaller than current GIC rates. It used to be that anytime someone wanted to lock in their money for a set length of time in a GIC, the interest they made would be much greater than the standard HISA rates. But now, seems like whenever the BoC rates go up, the HISA's do too, but the GIC's not so much. GIC's used to be a good two or three percent better than HISA, now they are often only half a percent better, or in some cases even less. Another strange thing, SCU's one and two year GIC are higher than their four and Five year, which up until last year was never the case, that I can remember? Why are GIC rates so poor these days compared to their HISA counterparts?
9:30 am
January 12, 2019
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.
Simply put . . .
- At present, loan demand for Short-term Money is higher than loan demand for Long-term Money ... creating an Inverted rate curve for GICs and HISA at many FIs. This doesn't happen all that often, but we've seen this more than once before, in the past.
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For more detailed/involved explanations, I'm sure others will soon chime-in.
Wait for it . . .
- Dean
" Live Long, Healthy ... And Prosper! "
10:03 am
October 27, 2013
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The yield curve http://www.worldgovernmentbond.....ry/canada/ is inverted due to the Bank of Canada raising short term interest rates to fight inflation.
BoC does not determine the yield curve for different maturities. The market does and market sentiment is currently saying (and has for the past year) that inflation will be beat sooner rather than later and thus interest rates for short term money will come down significantly in the next few years. The market is thus willing to buy 5 year bonds for as low as 3.885% yield currently on the belief that 1 year money (or liquid deposits like HISAs) may be only paying in the range of 2% five years from now.
That puts the squeeze on deltas between short term HISA money and GIC rates....though the difference is still quite substantial in my opinion. The spread is 3 percentage points with EQ Bank (HISA vs 5 year GIC) and 1.5-2 percentage points for several other FIs. On the loan side, it seems the greatest demand from consumers is 1-3 year mortgage terms, i.e. where the peak GIC rates currently are.
10:12 am
April 6, 2013
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The Bank of Canada rates are short term rates. They are the rates the bank pays for overnight deposits (target rate - 0%) and the bank charges for overnight borrowing (target rate + ¼%) by financial institutions. See Bank of Canada: Understanding our policy interest rate.
The rates are artificially high because of the Bank of Canada's inflation fighting. As AltaRed described, bond and GIC investors don't expect those short-term rates to remain as high as they are now. So, those investors are willing to buy long-term bonds and GIC's at lower rates.
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