When to lock in a longer term like 5yrs? | Hubert Financial | Discussion forum

Oct 26th ,then another rate hike Dec 7th. Canada has no choice but to follow US ,Inflation is not moving in the US . Until we start seeing layoffs and people stop spending, and demand for goods drop, and manufacturers start lowering prices ,rates will keep going up
Us rate hikes Nov 2 Dec 14th
And I disagree rates are still going up look at tangerine 5.10 3 year 5.20 5year

Though it's not a 1-to-1, direct correlation, and you never know what the needs of a particular financial institution are, GIC rates have risen this year during exactly the same time as central banks have increased their rates. That's not coincidence. And it appears central banks are not done by any means, so to me it would make sense that GIC rates will continue to rise too.

I (think I) remember the 1970s and 80s, when 5-year mortgage rates in Canada were generally over 10% and life went on pretty well for most, i.e. lot of upside still very possible without triggering economic ruin. I think someone on here pointed out a while ago that today's rates are historically still more in the neutral than the inflation-fighting range.

Bill said
Though it's not a 1-to-1, direct correlation, and you never know what the needs of a particular financial institution are, GIC rates have risen this year during exactly the same time as central banks have increased their rates. That's not coincidence. And it appears central banks are not done by any means, so to me it would make sense that GIC rates will continue to rise too.

I (think I) remember the 1970s and 80s, when 5-year mortgage rates in Canada were generally over 10% and life went on pretty well for most, i.e. lot of upside still very possible without triggering economic ruin. I think someone on here pointed out a while ago that today's rates are historically still more in the neutral than the inflation-fighting range.  

In the 80s you can buy a 4 bedroom detached house in Scarborough for less than $200k. Today same house goes for $1.5mm. Even mortgage rates of 5% makes the mortgage payment a lot more hefty than a $200k mortgage at 10%. Average wage has maybe double since ? If mortgage goes to 10%, a LOT of people will lose their house, and Cad banks will be in deep $hit

I personally would only lock in 5 years at 6% or higher.
Who knows if 6% will be available in 2023.

Lodown said
My latest view: At this time the BOC sees the economy is faltering, as per their plan, primarily due to their tightening which was brought on by the big jump in inflation in 2022. Given that inflation is now on the downtrend I foresee the BOC pausing a rate increase in January 2023. If all goes per their plan ...meaning higher wage demands are subdued, we may not see another rate hike in 2023....unless inflation figures start to move up again. I have seen higher wage demands across various sections of the economy and since these higher wages have fully kicked in, my crystal ball sees at least one more rate hike around the 2nd half of 2023 in response to an upswing in inflation.  

I think there may be another 1 to 2 hikes totally 50-75bps to fine tune the terminal rate over the next 6 months. And if they see the need to cut, it will be broadcasted well in advance and prob wont see first cut before 2024 the earliest.

While the Bank of Canada policy interest rate has not likely peaked yet, though it is likely temporarily on pause, the prospect of further material rate GIC rate increases is likely over. There may be some tinkering of GIC rates at the margins (i.e., longer term rates increasing a bit, or short term rates decreasing slightly), but on the whole, I expect to see a scenario where GIC rates begin to decrease and diverge both the BoC and perhaps even the GoC 5-year bond yield, potentially. The reason for this is because we've had a sharp increase in both the BoC policy interest rate, GoC 5-year bond yields, and mortgage interest rates. We will see slowing demand for mortgages—that's not to say that there's slowing housing demand (there isn't), but it will be more difficult for people to qualify for mortgages.

At the same time, OSFI has recently raised the Domestic Stability Buffer for Domestic Systemically Important Financial Institutions (D-SIFIs) from, I believe, 2.00% or 2.25% to 3.00% of risk-weighted assets, and boosted the range by which they may raise that with a previous ceiling of 3% and a new ceiling of 4%. Banks will now be required to hold significantly more capital for loans they originate and hold on their books. This does not mean that being required to hold more capital will mean they need to raise deposits; no, deposits simply are a loan/mortgage funding source. Regulatory capital is typically common shares, but may also include preferred shares and other forms. We're already seeing the results of this OSFI announcement on Friday. BMO immediately filed prospectus plans to raise up to $3.5-4.00 billion in capital, through a bought deal (where a syndicate of investment bankers agree to buy the shares at an agreed price, less a commission, then sell the shares through their brokerage businesses) common share issuance in a secondary offering ($1.7 billion) and a private placement ($1.8 billion) to a veritable "who's who" of Canadian federal and provincial pension plans.

Indirectly, though, being required to hold more capital will boost the funding costs of mortgages and further lead to slowing lending demand.

In short, we haven't yet seen the effects of the BoC's and, most recently, OSFI's regulatory moves.

There may still be some BoC rate hikes needed (between 0.25-1.00%), but because of the above, the best I can see happening in terms of deposit rates is seeing FIs increase the HISA rates. GIC rates are likely to lead the way to the downside, even before the BoC completely pauses and let alone before it begins a rate cutting cycle, which I expect to begin sometime in 2024.

In summary, if you have no near-term plans for the funds and don't anticipate shifting into risk assets (i.e., stocks) any time soon, I would recommend either a 3- or 5-year GIC ladder.

Cheers,
Doug

One more question, Doug. Are CUs considered to be D-SIFIs? Does the OSFI announcement include them? If so, would this explain why some deposit brokers are offering pretty sweet longer term GIC rates from CUs, such as the 5.6% offerings from Windsor Family Credit Union...CUs don't issue shares, and can only increase their buffer via deposits?

Doug said

There may still be some BoC rate hikes needed (between 0.25-1.00%), but because of the above, the best I can see happening in terms of deposit rates is seeing FIs increase the HISA rates. GIC rates are likely to lead the way to the downside, even before the BoC completely pauses and let alone before it begins a rate cutting cycle, which I expect to begin sometime in 2024.

In summary, if you have no near-term plans for the funds and don't anticipate shifting into risk assets (i.e., stocks) any time soon, I would recommend either a 3- or 5-year GIC ladder.

Cheers,
Doug  

Don't bet the farm on it, until inflation at 2%

December 14, 2022 Chair Powell’s Press Conference
CHAIR POWELL. You know, our focus right now is really on moving our policy stance to one that is restrictive enough to ensure a return of inflation to our 2 percent goal over time. It's not on rate cuts. And we think that we'll have to maintain a restrictive stance of policy for some time. Historical experience caution strongly against prematurely loosening policy. I guess I would say it this way: I wouldn't see us considering rate cuts until the Committee is confident that inflation is moving down to 2 percent in a sustained way. So that's the -- that's the test I would articulate. And you're correct. There are not rate cuts in the SEP for 2023. ................ But we need to be honest with ourselves that there's, you know, inflation; 12-month core inflation is 6 percent CPI. That's three times our 2 percent target. Now, it's good to see progress. But let's just understand we have a long ways to go to get back to price stability.

Today Tiff Macklem says he won't settle for anything less than a return to 2% inflation. Not 2.8% or 2.5%. Two per cent. The target is 2%.