There have been some big moves in the bond market lately, largely sparked by comments from Ben Bernanke last week that the Fed would reduce the amount of Quantitative Easing (QE) that has been adding $85 billion a month to the US economy. It’s no surprise that the immediate reaction of the bond market (underlying security website link for mortgages) was to increase rates as bond prices fell. With no artificial crutch to hold up the economy, investors are jumping out of bonds and this translates into higher interest (mortgage) rates for you and I. Thank you, Uncle Sam.
So what has this done to rates? Well, in the span of a few days yields on 5 year Government of Canada bonds have spiked close to 40 basis points. That being said, one can understand why the 5 year fixed rates have bumped a couple times from 2.89% to around 3.39%. Some haven’t stopped there. TD Canada Trust is reportedly going as high as 3.54%!
As you can see, we are going well over 3% on our fixed rates and unless the Fed reintroduces another round of QE, I think Mark Carney finally got his wish of increased rates before he leaves his post. I don’t see that we will go below 3% in the foreseeable future. Strong jobs numbers have also added some fuel to this fire and so it would seem the economy is heading in an upward direction again, and with that, higher rates will follow.
The conversation now becomes, do we look at other rates like the 10 year fixed and variable rates?
We’ll leave that for my next blog post…