Dave Larock in Interest Rate Update, Mortgages and Finances
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We received the U.S. employment data for March last week, and while the headline number beat consensus expectations, the details in the data were mixed.
Today’s post will provide the highlights, and will also explain why comments made by U.S. Federal Reserve Chair Yellen last week should help temper the market’s reaction.
March U.S. Non-Farm Payroll Report Highlights
While Fed Chair Yellen was most likely encouraged by the latest employment data, I don’t think they will alter her current wait-and-see monetary-policy approach. She offered surprisingly dovish commentary about the expected path of U.S. monetary policy last Tuesday when she spoke at the Economic Club of New York, saying that the Fed would “proceed cautiously”, and that “global economic and financial developments since December” had made the Fed’s expected pace for future policy-rate increases “somewhat slower” as result. Not surprisingly, the U.S. dollar sold off after her speech, and markets are now pricing in odds for only one Fed rate hike this year, and even then, without much conviction.
Five-year Government of Canada (GoC) bond yields fell by three basis points last week, closing at 0.70% on Friday. Five-year fixed-rate mortgages are available in the 2.39% to 2.59% range, depending on the terms and conditions that are important to you, and five-year fixed-rate pre-approvals are offered at rates as low as 2.69%.
Five-year variable-rate mortgages are available in the prime minus 0.30% to prime minus 0.40% range, which translates into rates of 2.40% to 2.30% using today’s prime rate of 2.70%.
The Bottom Line: The latest U.S. non-farm payroll data confirmed that U.S. labour market continues to heal, but only at a gradual pace that is not likely to compel the Fed to alter its cautious monetary-policy approach in the near future. This means that our fixed mortgage rates, which are priced on GoC bond yields that move in lockstep to their U.S. treasury equivalents, aren’t likely to be pushed higher by a material shift in Fed policy any time soon. Meanwhile, the Bank of Canada is likely to lag the Fed’s eventual policy-rate increases, perhaps by a significant margin, so variable-rate borrowers aren’t likely to be impacted until well after the Fed’s next rate rise.
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