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4% 1yr GIC - should I lock in or wait some more?
July 29, 2022
7:32 pm
agit
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The inflation still very high

The Fed’s preferred inflation measure set a new 40-year high in June
https://www.cnn.com/2022/07/29/economy/pce-inflation-june-fed/index.html

Many reason for the drop of the long term bond
- Recession fears
- Investors rushed to the relative safety of the bond market
- Disappointing economic data
- Rising interest rates
The question now is this the new range for long term bond, and rates will settle or rates reverse course?

When CB hikes, there is generally a 12-month lag in the economy, meaning that it will take at least 12 months for the effects of any increase or decrease ...

Central bankers have been behind the curve, they kept interest way to low for way to long and now Jerome Powell and Tiff Macklem new slogan "front-loading interest rate rises" mean aggressive rate hikes to push rates to 3.5%-4.00% at year’s end.

Still to early for me to lockin. short term only 3 months

July 29, 2022
9:53 pm
Loonie
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We still have the nagging problem that, although BoC signalled in July that it would likely raise rates again in Sept by about .5, five yr GIC rates have not budged. And they were slowing down even before this. In my mind, this does not suggest further hikes in long GICs this year but does fit with lower bond rates.

July 30, 2022
1:40 am
cgouimet
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Just looking at EQ Bank's rates ... 3/4/5Yrs are down ...

1Yr 4.35% (was 4.30)
2Yr 4.65% (was 4.60)
3Yr 4.65% (was 4.70)
4Yr 4.70% (was 4.75)
5Yr 4.80% (was 5.00)

CGO
July 30, 2022
4:41 am
Nirvana7734
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This was shared in another post but I haven't seen anyone reference it, so I will share the article here: https://financialpost.com/investing/interest-rates-are-still-rising-but-investors-should-start-preparing-for-when-they-come-back-down

This gives excellent 30-year historical context, then provides an educated estimate for the current rate-hike period. The author estimates that the "sweet spot" for locking in (i.e., when rates will peak) will be the end of 2022 or first half of 2023.

As for someone's comment about the stock market rising this past week and giving indications that we're back (or still) in a bull market, I would remain very skeptical of that sentiment. The analyst that I follow (www.pretzelcharts.com) states that this is simply a bounce within a long-term bear market that began in December 2021. Of course, he is but one analyst, but he's been very accurate since I found his site in 2019.

July 30, 2022
4:56 am
savemoresaveoften
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5y GIC wont move higher if 5y GC stays stuck at current level.
The professional market is saying short rates may rise further, 5y GC at 3% ish level is all they are willing to pay at this point.
And for now, its up to the individual investor to determine who has the bigger reinvestment or funding risk, is it the investor or the FI paying 4% plus in 1year GIC....

July 30, 2022
5:06 am
canadian.100
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Nirvana7734 said
This was shared in another post but I haven't seen anyone reference it, so I will share the article here: https://financialpost.com/investing/interest-rates-are-still-rising-but-investors-should-start-preparing-for-when-they-come-back-down

This gives excellent 30-year historical context, then provides an educated estimate for the current rate-hike period. The author estimates that the "sweet spot" for locking in (i.e., when rates will peak) will be the end of 2022 or first half of 2023.

As for someone's comment about the stock market rising this past week and giving indications that we're back (or still) in a bull market, I would remain very skeptical of that sentiment. The analyst that I follow (www.pretzelcharts.com) states that this is simply a bounce within a long-term bear market that began in December 2021. Of course, he is but one analyst, but he's been very accurate since I found his site in 2019.  

1. I agree with that FP article where the author estimates that rates will peak at the end of 2022 or first half of 2023.
2. I do not think anyone said "we're back (or still) in a bull market." I think the market sentiment simply might have changed in line with the belief that rates will stabilize end of 2022 or first half of 2023. We have been in a bear market which might continue this year, but I would not be surprised if the markets are up within the next year once inflation and rates stabilize - that does not mean a "bull market". I am not ultra positive on GIC rates this year - the reduction in some of EQ rates is not a good sign.

July 30, 2022
6:40 am
mechone
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EQ dropping rates does not concern me , it may mean they have brought in enough deposts ,they due set objectives . Rate's will increase , BOC rate before Covid was 1.75 and I bought GIC 5 year @ 3.4 . I believe the banks are waiting for what the next hike and inflation numbers will be . Yes housing has come down , but goods , rent has not, gas a bit ,diesel has not and is what is used to bring food , goods to stores , from tucks to trains to ships . Until oil takes a big dip I don't see rates stopping with a war raging and Russia

July 30, 2022
7:25 am
agit
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Nirvana7734 said
https://financialpost.com/investing/interest-rates-are-still-rising-but-investors-should-start-preparing-for-when-they-come-back-down 

Please note the following from the artical and well as since 1961 the Fed rate always was over 2.00% with exception of:
- Dot com bubble
- The financial crisis of 2008
- The Pandemic

Now The inflation,The inflation and The inflation

We’re routinely told that inflation is a great evil that hurts low-income people. But inflation also greatly impacts rich people. (now they are impacted) That’s because inflation erodes the real value of money. That’s why banks, their shareholders and the rest of Bay Street demand that the central bank raise interest rates to kill inflation. By killing inflation with higher interest rates drives up unemployment, it’s actually central strategy, therefore unemployment is up more people looking for work no more need to raise wages, With that CB hopes the inflation wont be "entrenched inflation".

The inflation is not going away anytime soon and high interest are here for few years infact Scotiabank and few other banks forcast that CB rate will go to 3.5% by Dec 2022 and stay @3.5% until the end 2023

July 30, 2022
7:31 am
savemoresaveoften
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agit said

Nirvana7734 said
https://financialpost.com/investing/interest-rates-are-still-rising-but-investors-should-start-preparing-for-when-they-come-back-down

Please note the following from the article and well as since 1961 the Fed rate always was over 2.00% with exception of:
- Dot com bubble
- The financial crisis of 2008
- The Pandemic

Now The inflation,The inflation and The inflation

We’re routinely told that inflation is a great evil that hurts low-income people. But inflation also greatly impacts rich people. (now they are impacted) That’s because inflation erodes the real value of money. That’s why banks, their shareholders and the rest of Bay Street demand that the central bank raise interest rates to kill inflation. By killing inflation with higher interest rates drives up unemployment, it’s actually central strategy, therefore unemployment is up more people looking for work no more need to raise wages.  

2% used to be the absolute floor for interest rate until 2008 financial crisis.
Since then, the world has changed in terms of there is actually no lower limit in interest rate, as in negative rates are possible and has happened in Europe and Japan, we almost got there in NA.
Obviously since 2008, inflation has been largely in check and this is the first time since then when we see big inflation print again. Having said that I don't think we will see O/N rates go back up to the 5-6% level again which was the level deemed proper to clamp down inflation. CB are already hinting they will stop at 3-4% or slow down their rate hike, to see how the economy reacts. It takes about 6 months to really feel the effect.

July 30, 2022
7:54 am
Dean
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cgouimet said

Just looking at EQ Bank's rates ... 3/4/5Yrs are down ...

1Yr 4.35% (was 4.30)
2Yr 4.65% (was 4.60)
3Yr 4.65% (was 4.70)
4Yr 4.70% (was 4.75)
5Yr 4.80% (was 5.00)  

Yet another sign that the longer term GIC rates 'may' have already peaked ❓

    Dean

sf-cool " Live Long And Prosper " sf-cool

July 30, 2022
8:03 am
Norman1
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The deposit taking financial institutions are not waiting for anything.

They adjust their deposit rates to bring in deposits at a flow that matches their lending. It is as simple as that.

If the Royal Bank finds that 0.8% brings in HISA money adequately, then 0.8% will be the rate of their HISA, regardless what the Bank of Canada has done to its policy rate.

If Equitable Bank finds that 5% is attracting 5-year deposits too quickly in its EQ Bank channel, then it will lower the EQ Bank 5-year GIC rate to fix the situation.

July 30, 2022
8:27 am
agit
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i agree with Norman1

First EQ does NOT set a trend nor the standard what they are doing simply a marketing strategy for EQ Bank

I don't care what EQ is offering or doing they are not a leader they just duplicate Oaken and now they are duplicating Tangerine.

What does matter is to always look for a trend from one the leader in Canadian Banking and now one of the BIG 5 "CIBC" is offering 5 for 5

July 30, 2022
9:20 am
Bill
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Inflation impacts the daily lives of the not-rich more directly than the wealthy, plus the not-rich have a lot more voting power, so I'm pretty sure the CB's in democracies are not fighting inflation primarily with the rich in mind.

This time around I wouldn't be surprised to see gov't programs (i.e. cheques), guraranteed income, etc to make sure the not-rich stay relatively happy if inflation is persistent, we now demand gov't money every time bad things happen and we'll elect those who promise money to us. So I'm not sure that interest rates will necessarily go as high as might be best, the sending-gov't-money- to-voters approach now is a popular tool too.

July 30, 2022
9:39 am
AltaRed
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Norman1 said
The deposit taking financial institutions are not waiting for anything.

They adjust their deposit rates to bring in deposits at a flow that matches their lending. It is as simple as that.

If the Royal Bank finds that 0.8% brings in HISA money adequately, then 0.8% will be the rate of their HISA, regardless what the Bank of Canada has done to its policy rate.

If Equitable Bank finds that 5% is attracting 5-year deposits too quickly in its EQ Bank channel, then it will lower the EQ Bank 5-year GIC rate to fix the situation.  

Fully agree. Too many folk are trying to read (guess) too much into the numbers. Every institution will only do what they need to do to match their loan book. With the inverted GoC bond yield curve, I am surprised we are not seeing more adjustments to completely flatten 3-5 year GIC rates at a minimum.

Given mortgagors are now more likely to stop opting for 5.5% or higher 4-5 year fixed rate mortgages, and the 5 year GIC rate now approximating 200 bp spread with the GoC5 bond, I see corresponding GIC terms to potentially reverse as well.

We live in interesting times.

July 30, 2022
10:28 am
cgouimet
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AltaRed said

Fully agree. Too many folk are trying to read (guess) too much into the numbers. Every institution will only do what they need to do to match their loan book. With the inverted GoC bond yield curve, I am surprised we are not seeing more adjustments to completely flatten 3-5 year GIC rates at a minimum.

Given mortgagors are now more likely to stop opting for 5.5% or higher 4-5 year fixed rate mortgages, and the 5 year GIC rate now approximating 200 bp spread with the GoC5 bond, I see corresponding GIC terms to potentially reverse as well.

We live in interesting times.  

Agree too. When I saw this reduction earlier today, I thought hmm there must be lots of people biting into 4/5 Yr GIC's ...

CGO
July 30, 2022
12:55 pm
HermanH
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savemoresaveoften said And for now, its up to the individual investor to determine who has the bigger reinvestment or funding risk, is it the investor or the FI paying 4% plus in 1year GIC....  

I think that 1-yr rates are currently a trap set for those to catch a falling market, with renewal dates right when the rates will fall.

July 30, 2022
4:54 pm
savemoresaveoften
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HermanH said

I think that 1-yr rates are currently a trap set for those to catch a falling market, with renewal dates right when the rates will fall.  

Yup, that’s exactly why FI are ‘generous’ to offer that rate. It’s not a guarantee win for the investors, who blindly believe it’s the best term and think it will just be renew at a even higher rate in 12 months time,

I certainly wish I am wrong on this, but I am prepared in case I am right.

July 30, 2022
7:09 pm
Greedy Guy
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HermanH said

I think that 1-yr rates are currently a trap set for those to catch a falling market, with renewal dates right when the rates will fall.  

I fully agreed with you. Canada will probably be in a recession next year. Interest rates will be dropped in 2023 to stimulate the economy which in turn leads to lower GIC rates.

July 31, 2022
8:33 am
agit
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This thread is now the justification thread for many of you who bought 5 years GIC or about to do so. Please give me a break taking EQ 5 years GIC drop as the canary in the GIC coal mine is a great lack of intelligence or common sense, when CIBC is offering 5 years for 5%.

July 31, 2022
10:55 am
savemoresaveoften
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agit said
This thread is now the justification thread for many of you who bought 5 years GIC or about to do so. Please give me a break taking EQ 5 years GIC drop as the canary in the GIC coal mine is a great lack of intelligence or common sense, when CIBC is offering 5 years for 5%.  

Neither the EQ drop nor the CIBC offering means anything one way or the other.

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