GIC's have broken 5% | Page 3 | GIC discussions | Discussion forum

A testamentary trust in Canada can still elect to be a graduated rate estate for its first 36 months.

The Canadian tax rules are moot for foreign trusts. Foreign trusts are subject to the income tax laws of the country they are resident in and not Canadian tax laws.

Other than Motive, has anyone seen 5-yr+ rates over 5.15% for anyone anywhere?

I sort of doubt we will see more moves of any significance on 5 year GIC rates. The GoC 5 year bond has actually dropped about 40bp in the past month to about 3.1%, and if a significant percentage of people place much belief in what Tiff Macklem says, BoC expects inflation to drop to about 2% by the end of 2024. Why would many sign up for a 5 year fixed rate mortgage today when a 2-3 year mortgage puts them in that potential future 'window'?

The curve has gone essentially flat, and institutions that can readily go to the BoC bond market for capital, the curve may go totally flat within a few months.

I retrieved a quote from Scotia iTRADE.

Government of Canada 2% bond maturing 2051-Dec-01. Trades at a yield to maturity of 3.03%.

Bond rates alone don't really dictate GIC rates. If 3½% for one-year GIC's brings in one-year GIC money at a flow that matches RBC's placing of one-year loans, then 3½% will be RBC's rate for one-year GIC's.

Why pay the 4.3% that EQ Bank needs to when RBC doesn't need to?

NCC1701Z said
7 to 10 year rates are now 5%!

6 year is 4.85%

https://www.motivefinancial.com/en/rates

Highest rates since the 90's  

… It is now almost end of July. And my expectation is too see 5% for a 3-yr term in August.

Those speculating on GIC rates would do well by reading Rob Carrick's piece in the G&M (subscribers only) https://www.theglobeandmail.com/investing/markets/inside-the-market/article-rob-carrick-why-gic-rates-didnt-pop-after-the-big-jump-in-the-bocs/?utm_medium=email&utm_source=Globe%20Investor&utm_content=2022-7-22_18&utm_term=These%20market%20sectors%20are%20your%20best%20bets%20right%20now.%20Plus%2C%20why%20we%20may%20have%20reached%20peak%20GIC%20rates&utm_campaign=newsletter&cu_id=Q8RvGKY792WRonw7uy%2BiXlsO6IS7G1%2Bu

A few key quotes from the article based on a discussion with an official at EQ Bank...

“GIC rates are heavily driven by the competitive market for GICs,” Ms. Poddar said. “But, generally, they’re priced based on a spread to Government of Canada bonds. They don’t actually get priced using the Bank of Canada benchmark rate.”

The GIC market is highly competitive these days, notably among alternative financial institutions like EQ that compete with the big banks to attract clients and their money. Ms. Poddar said EQ continually balances rates offered by competitors against its own need to attract funds that can be used in the mortgage lending business of its parent, Equitable Bank.

A trend to keep your eye on if you’re a GIC rate watcher: concern about rising rates causing a recession has pushed bond yields down from a mid-June peak for the year of 3.5 per cent. Competition between alternative banks and credit unions remains aggressive, but what’s happening in the bond market suggests GIC rates may have peaked for the near term.

of course EQ want you to buy their GIC now, but suggesting that GIC not actually get priced using the Bank of Canada benchmark, is laughable, actualy the bond is linked to what interest rates are doing not the other way.

The Bank of Canada’s policy rate serves as a reference for the rates that the banks charge to consumers ie LOC mortg etc HOWEVER The banks aren’t obligated to raise savings account, GIC interest in proportion to borrowing interest rates, but competitive pressures may eventually result in a rise.

Buying GIC now or wait 3-6 months that entirely up to you.

The GIC and or rate will peak when inflation is under 4-5% or under control and CB pause. CB rate still going up

GIC rates are correlated with GoC bond yields, i.e. the 5 year to GOC5, 4 year to GOC4, etc. It has always been that way.

The spreads are not constant of course because it depends on how much capital an FI needs of a particular term (1, 2, 3, 4, or 5 years) to write mortgages. Hence why one sees differences in the rates being offered by each institution for each of the various fixed terms. For example, the top eight offering ~5% for 5 year have some substantial differences between them at lower fixed terms.

I have seen spreads between bond yields and GIC rates of less than 100bp at times and more than 200 bp at times (currently 180 bp or so at the 5 year level). With GOC5 yield having come down a fair bit in the past 30 days, I don't see upward movement happening in GIC 5 year rates any time soon.

Added: Whether GIC rates go beyond 5% will depend on bond yield curve changes for the most part.