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Last week was an interesting one for five-year Government of Canada (GoC) bond yields, which our five-year fixed mortgage rates are priced on.
We started the week with GoC bond yields falling in sympathy with their U.S. counterparts as investors re-evaluated their bets that the Trump presidency would lead to higher growth and inflation. Thus far, President Trump has focused on his anti-immigration and protectionist trade policies and not on his promises for fiscal stimulus and tax cuts.
Investors must also be wondering how much, if any, political capital President Trump will have left once he is done fighting with the courts over his Muslim ban and after he gets through the Senate confirmation hearings for his cabinet appointees. Mind you, when the people you nominate to head the education and labour departments and the Environment Protection Agency have all publicly called for the elimination of the same departments they are now tasked with leading, contentious confirmation hearings shouldn’t come as a surprise.
President Trump’s erratic behaviour also raises geopolitical instability risks, and this too is exerting downward pressure on bond yields because capital flows towards safe-haven assets, like bonds, in uncertain times.
Against that backdrop, we received the latest Canadian employment data, for January, on Friday. The headline came in much higher than expected for the second straight month and Canadian mortgage borrowers are now speculating about whether this continuation of stronger-than-expected employment data might trigger another round of mortgage rate increases.
To help answer that question, let’s start by looking at five key highlights from the latest Canadian employment data:
- The Canadian economy added another 48,300 new jobs in January. This smashed the consensus forecast that we would actually lose 10,000 jobs in January, as economists predicted that we would give back some of the 71,000 new jobs that were added in December.