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Bank of Canada increases overnight rate target to 1 per cent

bankofcanada.ca

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Re: Bank of Canada increases overnight rate target to 1 per cent

#31

Post by victor106 »

SimbaOnSteroids wrote: post #14
latch wrote: post #9

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.

Also there are regulations that say that banks have to hold x% of there reserves in govt. issued bonds for those reserves to count as Tier 1 capital.

Re: Bank of Canada increases overnight rate target to 1 per cent

#32

Post by scarhill »

SimbaOnSteroids wrote: post #14
latch wrote: post #9

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.

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.

Re: Bank of Canada increases overnight rate target to 1 per cent

#33

Post by KekDemaga »

oculusthrift wrote: post #29
JshWright wrote: post #26

Earlier quoted context omitted.

> Government bonds are seen as ultra-safe, comparable to cash, and while 2.2% is not great it's better than 0%. And much better than anything < 0%.

swiss and some german bonds have been known to sell for negative yield because losing a small gauranteed amount is better than losing a lot

How would you lose value in cash in a way that you wouldn't with a bond?

Re: Bank of Canada increases overnight rate target to 1 per cent

#34

Post by astrodust »

X86BSD wrote: post #22
feriancek wrote: post #16

Earlier quoted context omitted.

As a hedge against a market collapse?

Like gold and silver?

Those aren't as valuable in a crisis as you might think. Pure gold and junk gold are largely interchangeable. If you want to be ready for some societal meltdown, load up on junk gold. A small gold ring is easier to barter with than a gold brick.

Re: Bank of Canada increases overnight rate target to 1 per cent

#35

Post by JshWright »

KekDemaga wrote: post #33
oculusthrift wrote: post #29

Earlier quoted context omitted.

swiss and some german bonds have been known to sell for negative yield because losing a small gauranteed amount is better than losing a lot

How would you lose value in cash in a way that you wouldn't with a bond?

Because it may make more sense to free up the capital to put it in a better performing allocation. You'd sell the bond for a loss in order to get the cash to invest in something else.

Re: Bank of Canada increases overnight rate target to 1 per cent

#36

Post by cpncrunch »

betaby wrote: post #12
levesque wrote: post #7

So what exactly does this entail?

More expensive loans, higher interest rate on mortgages and credit cards. Traditionally saving accounts won't be affected and still have near zero return rate thought.

>saving accounts won't be affected and still have near zero return rate

While the big banks have near zero savings interest rates, most of the credit unions and low-fee banks (like Tangerine) have higher rates. I've used Outlook Financial for years, as they tend to have the highest rates (1.7% for regular savings, at the moment).

I don't understand why you say "saving accounts won't be affected", as savings rates are ultimately tied to mortgage rates (the difference between the two gives the bank their profit).

Re: Bank of Canada increases overnight rate target to 1 per cent

#37

Post by ww520 »

SimbaOnSteroids wrote: post #14
latch wrote: post #9

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.

Interest paying bond is very attractive in the face of deflation.

Re: Bank of Canada increases overnight rate target to 1 per cent

#38

Post by rjtavares »

KekDemaga wrote: post #33
oculusthrift wrote: post #29

Earlier quoted context omitted.

swiss and some german bonds have been known to sell for negative yield because losing a small gauranteed amount is better than losing a lot

How would you lose value in cash in a way that you wouldn't with a bond?

When you're talking about billions:

If you hold it physically, you have to store it and secure it, which costs money.

If you deposit it in a commercial bank, it'll be less safe than German bonds.

Re: Bank of Canada increases overnight rate target to 1 per cent

#39

Post by fpgaminer »

I'm still learning all the tendencies of these macroeconomic trends...

So, this should mean mortgage loan rates, savings account interest rates, and inflation are all now on an upward trend. Right?

And thus housing prices should begin to curb, since the cost of loans making buying houses more expensive and less appealing, thus lowering demand.

(I've already noticed increasing savings account rates and mortgage rates, so it definitely seems like this is an upward trend, though I haven't seen much curbing of housing prices yet)

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