101–110 of 214 posts
Earlier quoted context omitted.
Canada's consumer price index hasn't exceeded 4% since 1990 and has averaged 1.74% since then. So investors who are buying those bonds could reasonably see things differently than you do.
I don't get how that could possibly be true, given that the CAD has depreciated something like 30% in the past few years vs USD?
For those not following Canada's economy. Two weeks ago no one was sure if they'd hike the rate again, and no one thought they'd do it so quickly (though it seemed likely they'd do it ~oct/nov). But, Canada posted exceptionally strong growth numbers (4.5%) at the end of August, which kind of made this very likely. Also, the government just sold bonds that mature in 2064 (at 2.2%) and has indicated that it might issue…
Why would any entity buy bonds that when matured will not have kept up remotely with inflation? Obviously I'm missing some key idea here, I just have no idea what it is.
Earlier quoted context omitted.
I believe the official stance of the bank of Canada is inflation is below target hence the low rates being acceptable for so long. What I don't understand (and I hope someone can shine some light on!) is the basket of goods they use to measure inflation doesn't seem to be very impacted by low interest rates - therefore how will the low rates increase inflation? i.e. banks will only lend to me at below 5% if I'm buyin…
Another thing I don't understand about the basket of goods approach to measuring consumer prices is how we're getting inflation figures which are so low. Since goods we buy priced in USD have gone up massively in 2-3 years due to a falling Canadian dollar (electronics, smartphones, computers, SaaS, etc.), the only way the basket stays at 2% YoY growth is if that's offset by other things falling in price. But, anecdot…
EG you buy more electronics and gas (cheaper), and less clothing and food (more expensive), but your overall spending remains ~50% of your income, which hasn't changed.
Wages are usually the primary driver of higher CPI measured inflation.
Inflation has occurred outside of CPI basket, most notably in equity markets and real estate prices in large urban cities - and bitcoin :)
Informational note: The notion of fixed rate mortgages does not exist in Canada. You can lock in for about 5 years, but otherwise your mortgage rate floats with prime. If prime rates rise, borrowers can be on the hook for large amounts of defaults as incomes fail to keep up with higher payments. (canadian housing market exhibits higher sensitivity to interest rates)
What you're describing is a fixed rate mortgage with a 5 year term. We may not allow 40 year terms, but that doesn't mean we don't allow fixed rate mortgages. After the term is up you can renegotiate a new fixed rate term if you want, or move your mortgage. That said, fixed rate mortgages almost always cost you more in the long run, though a 5 year term is probably going to screw you less than a 25+ year term.
For those not following Canada's economy. Two weeks ago no one was sure if they'd hike the rate again, and no one thought they'd do it so quickly (though it seemed likely they'd do it ~oct/nov). But, Canada posted exceptionally strong growth numbers (4.5%) at the end of August, which kind of made this very likely. Also, the government just sold bonds that mature in 2064 (at 2.2%) and has indicated that it might issue…
Okay, but at the same time yields on US government debt just reached their lowest point since last November. Due to various factors (North Korea, natural disasters, etc) the Federal Reserve is now talking about raising interest rates slower than they had originally planned, which was already pretty slow. The era of cheap money has to end eventually obviously, but it doesn’t seem like things are going to change all that fast.
Earlier quoted context omitted.
Banks are allowed to loan out the money, but they don't have to , and could take business from the negative-yielding government bonds by just leaving the money alone, in their electronic reserve account.
Then where is the bank supposed to keep their money? In another commercial bank? In cash? This creates an infinite regression problem... They could keep it in the Fed, but the Fed charges money for the privilege (and I assume so does the ECB and other equivalents)
Earlier quoted context omitted.
Then where is the bank supposed to keep their money? In another commercial bank? In cash? This creates an infinite regression problem... They could keep it in the Fed, but the Fed charges money for the privilege (and I assume so does the ECB and other equivalents)
Banks hold unloaned reserves already.
Earlier quoted context omitted.
In Canada, banks offer fixed and floating rate mortgages; the mortgage rate is always prime + some %. If you get a fixed-rate mortgage, you're locked in to your rate for 5 years regardless of how the Bank of Canada changes the prime rate. This has been the product of choice for Canadians for the last several years because it protects you against rising interest rates, and rates have had nowhere to go but up. If you g…
Yeah, but locking in a rate for 5 years is so different from locking it in for 30 that it seems kind of misleading to say "both places have fixed-rate mortgages." I'm actually a little unclear on the specifics here; is it that you have a balloon payment and the typical thing is to get another, smaller loan to pay that off?
Unlike the US, there are hefty fees for early payoff of the mortgage, so if you were in the position to pay it off, you would probably want to wait until the end of the current mortgage (depending on lots of different factors, of course).
The commonwealth countries are all facing a property bubble (Canada, New Zealand, Australia, etc). The household debt levels and property prices didn't taper off nearly as much following the 2008 US housing crisis and has pretty much continued unabated: http://www.huffingtonpost.ca/stephen-punwasi/real-estate-bub... Which is fascinating to consider that the Bank of Canada, et al, have let this happen for so long and…
Any source for this?