Dave Larock in Interest Rate Update, Mortgages and Finances
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Last Thursday U.S. Fed Chair Janet Yellen confused markets once again when she seemed to contradict the Fed’s cautious policy statement from the week prior. For example:
There are smart people on both sides of the argument about whether the Fed will ultimately raise its policy rate this year. Interestingly, China and Japan have gone from being the biggest buyers of U.S. treasuries to being net sellers of late, and while that drop in demand has thus far been absorbed by other buyers, if overall demand for treasuries wanes, we will see U.S. bond yields rise regardless of what the Fed does. It would be ironic if 2015 ended with the Fed announcing the start of QE4 to counteract upward pressure on U.S. government bond yields rather than with the Fed raising its policy rate. That may sound a bit off the wall at the moment, but market analysts who have proven prescient in the past are now talking about the advent of QE4. Stay tuned.
Five-year Government of Canada bond yields rose by ten basis points last week, closing at 0.86% on Friday. Five-year fixed-rate mortgages are offered in the 2.49% to 2.59% range and five-year fixed-rate pre-approvals are available at rates as low as 2.64%.
Five-year variable-rate mortgages are available in the prime minus 0.65% to prime minus 0.75% range, depending on the size of your mortgage and the terms and conditions that are important to you. A few lenders shrank their discounts down to prime minus 0.50% last week, so if you’re in the market for a variable rate, you are well advised to secure a pre-approval.
The Bottom Line: Markets are increasingly confused about the Fed’s policy direction and that uncertainty is likely to make them more volatile. This heightens the significance of each new economic data release and raises the possibility that investors will overreact to both downside and upside surprises. While I expect that both our fixed and variable mortgage rates will hold steady for the time being, nervous markets make me less confident about that view. In the mortgage world, forewarned (and pre-approved) is forearmed.
David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog, Move Smartly, and on his own blog: integratedmortgageplanners.com/blog Email Dave