Rob Carrick's Take on GICs Today | Page 2 | GIC discussions | Discussion forum

It also depends on the intended use of the Government of Canada bond rates.

The rates from the Bank of Canada are for statistical use. But, they are not actual transactional rates that one can buy or sell the bonds at.

If one wishes to buy or sell the bonds, one needs to contact brokers to see what rates each broker is willing to transact at, out of or into their inventory of bonds.

The Bank of Canada page is as good as any for the purpose you are using it for, i.e. trends and delta calculation purposes. I visit the BoC page about once a week to see what the trend is. https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/

GIC rates don't necessarily respond directly to BoC bond yields, i.e. they don't react to every move and the delta between bond yields and GIC rates is also affected by what competing FIs are doing, and by what the needs are by each FI.

However, BoC bond yields are a good proxy for directional changes in GIC rates.

Quoted Government of Canada bond yields are the calculated yield-to-maturity for previously issued bonds, based on an indicative current price for the bonds.

The 3.19% yield for ten year bonds is based on the current price of Government of Canada 2.00% bonds that mature 2032/06/01 (CA135087N597). Those bonds were issued starting in March of this year:

The quoted Government of Canada bond yields are not quite the same as quoted GIC yields.

savemoresaveoften said

This is the same as what I provided in post#21. On my original link, you just choose the one u want and click on it.

https://www.marketwatch.com/investing/Bond/TMBMKCA-05Y?countryCode=BX  

sorry to be so dumb, but which one should I want to look at to see the trend?

I'll get my spouse to take a look. Part of my problem is that my vision is very very poor at this point and it's hard for me to see everything on a screen with different fonts and colours etc.
I was just hoping for one place where the relevant number would appear.

Sorry, Norman, but I can't follow what you're saying Is the bond issue you refer to the one I should be looking at?

Loonie said

…
Sorry, Norman, but I can't follow what you're saying Is the bond issue you refer to the one I should be looking at?

The Government of Canada 10-year bond rate I mentioned is one of the rates available from the Bank of Canada site. The site also has the rates of the 2-year, 3-year, 5-year, and 7-year bonds.

The rate to use depends on what one is trying to do.

GIC rates are not tied to Government of Canada bond rates. The relationship between the two is not as easy as that. If the GIC issuer has too much 3-year money coming in, then the issuer isn't going to care what the Government of Canada 3-year bond is yielding.

Loonie said
Individual FIs do have different needs at different times, but there are general trends in rates nonetheless. (Virtually all FIs are now offering rates substantially higher than they did a year ago, for example.) I'm looking for those trends inasmuch as they might be generally forecast by govt bonds.  

You won't get what you are looking for beyond market (sentiment) view of the yield curve for 2-30 year government bonds as it exists today. That yield curve changes a bit every single trading day and shifts whenever the BoC makes an interest rate change or makes comments in some public forum.

When the BoC made a 50bp change in the overnight rate on Oct 26th, the yield on 5 year bonds dipped rather sharply. Why? Perhaps the market thinks the 50bp increase will help in the fight in inflation and thus the yield for 5 year bonds no longer needs to be as high at this moment for investors to hold bonds. The only conclusion I would draw from this for GICs is that FIs are unlikely to raise rates for 5 year GICs in the near term, and may in fact drop their rates a bit. But what may happen next month or next Spring remains a WAG.

AltaRed said

When the BoC made a 50bp change in the overnight rate on Oct 26th, the yield on 5 year bonds dipped rather sharply. Why? Perhaps the market thinks the 50bp increase will help in the fight in inflation and thus the yield for 5 year bonds no longer needs to be as high at this moment for investors to hold bonds.

That can’t possibly be the “market thinking” because the market expected a 75bp change.

Could be other plausible explanations. Like the market may think BoC knows something we don’t, eg that a recession is coming which could reduce inflation and rates.

AltaRed said

You won't get what you are looking for beyond market (sentiment) view of the yield curve for 2-30 year government bonds as it exists today. That yield curve changes a bit every single trading day and shifts whenever the BoC makes an interest rate change or makes comments in some public forum.

When the BoC made a 50bp change in the overnight rate on Oct 26th, the yield on 5 year bonds dipped rather sharply. Why? Perhaps the market thinks the 50bp increase will help in the fight in inflation and thus the yield for 5 year bonds no longer needs to be as high at this moment for investors to hold bonds. The only conclusion I would draw from this for GICs is that FIs are unlikely to raise rates for 5 year GICs in the near term, and may in fact drop their rates a bit. But what may happen next month or next Spring remains a WAG.  

WAG = wild ass guess, I'm guessing?

But as to the substance of your reply, I agree with it. BoC-listed selected bond yields do provide some direction in terms of GIC rates, but there are other factors, too. Type of institution (i.e., bank or credit union) in terms of different access to sources of funds and capital, institutional ability and prowess to successfully match mortgage maturities to GIC maturities (i.e., need for funding), growth of institution's mortgage book, type of loans on the balance sheet (i.e., Canadian Tire Bank's loan book is credit cards, which carry far higher interest rates so they have a lot more room for margin compression, particularly given their credit card loans will be the first to default and most stressed in inflationary environments and unlikely to grow, so it is to their advantage to carry borrowers through by not raising credit card interest rates commensurately), and local competition between local lenders.

On Canadian Tire Bank, 20-25% of their funding is provided by The Bank of Nova Scotia's securitization funding sources, as the 20% owner of the bank. The other funding sources are roughly split equally between Canadian Tire Bank's GICs and HISAs (direct-to-consumer and broker, direct broker and nominee form broker) and Glacier Credit Card Trust securitization vehicle. They also have the ability to draw on additional funding from their parent company, Canadian Tire Corporation, or potentially from Scotia. By 2024, Canadian Tire Corporation has the option to sell up to an additional 29% of Canadian Tire Bank to Scotiabank at fair market value, or Scotiabank can exercise its right to force Canadian Tire Bank to buy back its 20% stake at fair market value, per the May 2014 press release. The parties could alter the agreement and negotiate a complete buyout of Canadian Tire Bank by Scotia, if they wanted. I haven't seen any scuttlebutt on which direction the parties intend to take, but the date is fast approaching.

Cheers,
Doug

agit said
"market expected" hmm = "journalist forecast"

Fact

BMO Economics
Bank of Canada: At the October 26 meeting, we look for a 50 bp action, lifting the policy rate to 3.75%

CIBC Economics
although at higher levels than we earlier expected. Another half point move this fall will put overnight rates in Canada at 3.75%, ... takes the ceiling on the funds rate to 4.25%.

RBC Economics
will require a further 100-125 bps of (cumulative) tightening at the remaining two meetings this year (more than the 75 bps we have penciled in) and another hike or two in 2023

former BoC governor said while the final objective remains the same — to likely hit 4 or 4.25 per cent by the end of the year

BofC remain on target to hit 4.25% as forecast but ALL major bank in Canada.

IMO It's simple Focus On The Goal And Ignore The Noise  

The only actual fact: relatively sharp movements in TSX and Canadian government bond prices on the day of the announcement. Which tells me 0.5% hike was against market expectations, whichever old quotes we choose to bring up.

I'm not convinced by the narrative that markets expected a .75% increase as I barely follow this stuff and by osmosis it was clear to me as the time grew close that it was likely to be .5%. And I'm also pretty sure I'm not a better prognosticator than the market.