MORTGAGE NEWS

That Was Painless




Ever since the infamous 2013 Taper Tantrum, we've been hearing about impending Fed rate hikes and all of their implications. It was like a giant raincloud following us month after month. Today, finally, that cloud of uncertainty passed. A few quick thoughts on the Federal Reserve's 25-basis-point rate bump: It was built up as a blockbuster rate meeting. Yet, yields closed the day little changed. What we saw was a case of textbook anticipation fatigue, and an announcement that couldn't have been any more anticlimactic. Our eager economist friends are already predicting what happens next: four more U.S. rate hikes in 2016, they say. Long-term Canadian rates—like the 5-year yield&mda...


More on Benchmark Changes




Our recent story on changeovers in the benchmark 5-year bond sparked some good questions about how and when the benchmark changes. As noted in that previous story, when the market rolls over to a new benchmark bond, it can play havoc with bond yield charts (which many mortgage pros watch for clues on rate direction). Here are some related FAQs on bond issuances and benchmarks: Question: How often does the Bank of Canada (BoC) auction off new 5-year government bonds? Answer: The Bank of Canada currently auctions two new 5-year bonds per year. Thereafter, each of those bonds is re-opened (re-auctioned) two to four more times. More info Question: Does the benchmark change because t...


Changes in the Benchmark Bond




As most readers here know, fixed mortgage rates follow bond yields over time. That's why, with the 5-year fixed being Canada's most popular term, mortgage originators keep close watch on the 5-year government bond yield. Last Thursday, however, the 5-year yield displayed what some deemed to be a concerning 11-basis-point spike. The Bank of Canada's website noted the same 11 bps increase. To an untrained eye, this leap in yield might have been caused by ominous inflationary news (inflation expectations are the #1 factor influencing bond yields). In reality, Thursday's jump in the 5-year yield was simply the result of a change in the benchmark bond. ...


Rate Reflections




Some odds and ends from the week's mortgage rate action… The Misleading Core… One can be forgiven for wondering why the BoC cut the overnight rate ¼ point on Wednesday when its official "core" inflation measure is above target. As it turns out, core inflation (which has stubbornly risen to 2.3%) doesn't tell the whole story. Governor Stephen Poloz believes the "underlying trend" is actually much lower at 1.50% to 1.70%. "The Bank of Canada tries to strip out transitory factors in determining the underlying trend," explains DLC Chief Economist Dr. Sherry Cooper. The biggest transitory factor at the moment is the boost in import (input) prices caused by our plunging l...


Covered Bonds in Canada




Most homeowners don’t know what a “covered bond” is. But they’d probably be happy to hear that covered bonds help lower mortgage rates (indirectly) and provide borrowers with more options. The following is a look at the growing Canadian covered bond market and what it means to everyday borrowers and lenders. What is a Covered Bond? Covered bonds are basically bonds that are issued by a financial institution (FI) and backed by two things: A) That institution’s good credit B) A large pool of collateral (such as mortgages) Covered bonds have existed in Europe since 1769. Denmark is the largest issuer of mortgage-backed covered bonds, having sold som...


How Low Can Yields Go?




Today’s historically low bond yields beg a very interesting question: just how low can yields go? It may surprise you to know that the bottom in bond yields is actually (theoretically) below zero. Negative bond rates have numerous precedents. Government yields from countries like Japan, Switzerland, Germany, Sweden and even the U.S. have all been sub-zero. When yields dip below zero, it means giant fixed-income investors are paying for a safe place to park their billions. As just one example, observe this chart of the Swiss 2-year government bond. It’s been underwater (with a yield below zero) for several quarters.     Some wonder if this could ever hap...