We have seen a bit of volatility in the past week following the US election. With a Trump victory we saw a spike in the US treasury yields, which in turn spiked Canada bond yields putting upwards pressure on fixed rates. As a result, we saw some Canadian lenders make small upwards adjustments to their fixed rate offerings. 5 year Canada bond yields dipped closer to 3% towards the end of last week, only to jump up again to 3.12% today after the readings on US October inflation.
The question is what will the next 4 year look like under the Trump Administration, and what does that mean for Canadian interest rates? Trump has made it clear that he is going to maximize US economic growth in the coming years, and with the surge we have seen in the markets over the past week, investors tend to agree. A robust and growing economy draws money away from treasuries and bonds and into the private sector, treasury and bond yields increase as a result and this puts upwards pressure on fixed interest rates. Whether we like it or not, Canadian fixed mortgage rates are influenced more by what is happening in the US economy than in our own economy. Variable rates are another story.
The Canadian economy continues to lag behind the US and other developed countries, especially on a productivity basis. Many are asking what will happen if Trump brings in new tariffs, tariffs that could be 10% on any Canadian exports flowing into the US. Seeing as that approximately 77% of Canada’s exports go to our American neighbors that could spell very bad news for Canada’s economy. A struggling economy usually means reduced spending, reduced demand and therefore downwards pressure on inflation. And what does the Bank of Canada do when the economy is in a slump and inflation drops below their 2% target? They lower interest rates! For the above-mentioned reasons economists are now wondering if the BOC will have to drop the policy rate further and faster than earlier forecasts, this could mean we start to see a substantial spread next year between fixed and variable rate offerings, with variable rates dropping lower as fixed rates are propped up by a surging US economy. The other concern is what inflation could trickle into Canada from the US due to their strong economy, increases prices due to import tariffs, and decreased buying power as the Canadian dollar continues to lose strength against the US dollar. It could be an interesting few years ahead for Canadian interest rates!
Questions about your mortgage? I encourage you to reach out!
Craig Van Dolder
BC Mortgage Broker
ON Mortgage Agent Level 2
C. 519-372-8524 E. craig@vandoldermortgages.com Web: vandoldermortgages.com
