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4% 1yr GIC - should I lock in or wait some more?
August 1, 2022
7:39 pm
agit
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Loonie said
But there is something still going on with these rates that is odd. It may suggest that even higher rates are coming soon, but I am unsure of that right now.  

https://www.cp24.com/news/savings-are-slowly-dripping-away-as-deposit-interest-lags-far-behind-inflation-1.6009414

August 1, 2022
9:24 pm
Loonie
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That's a decent article. It doesn't answer my questions, but does show that we have good company in our uncertainty!

August 1, 2022
11:18 pm
Norman1
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AltaRed said

I find it surprising the big banks are offering so much for GICs since their primary cost of capital such as GoC 5 year bonds is generally so much less (about 3% these days). It defies explanation.

The big Canadian banks can't raise funds at Government of Canada rates. None of them have the matching AAA debt rating.

The banks usually issue bonds around the rates of provincial bonds. But, the rates of bank bonds are also elevated. For example, Scotia iTRADE is offering bonds of TD and CIBC maturing in 2023 with yields to maturity around 3.75%.

August 2, 2022
1:05 am
Loonie
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If you want a 2023 CIBC maturity, you can now get a one year GIC @ 4.25%, no broker required.
http://www.cibc.com/en/persona.....-rate.html

August 2, 2022
1:11 am
Canuck
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Loonie said
That's a decent article. It doesn't answer my questions, but does show that we have good company in our uncertainty!  

Frankly, the uncertainty is hard for me to stomach. The whole reason many savers prefer GICs in the first place is so that they don't have to "time the market", or at least not to a significant extent. That's why I've always avoided the stock market. Now the dynamics are similar with GICs.

It sure would be nice if we had stable money and market interest rates that would fluctuate slowly and predictably (more or less). But what we're told by all of the super smart people is that the business cycle and a debt-based economy are very important things and that's just the way that it has to be. I don't know enough to know if that's true.

What I do know is that my RSP funds are sitting in a savings account at EQ Bank and they just lowered their 5 year GIC rate. Now I don't know whether to book a 5 year GIC with Oaken at 5% or to wait longer.

August 2, 2022
5:22 am
Bill
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Nothing new really, the future has always been uncertain, people make decisions and hope for the best.

One strategy some people use is not all your eggs in same basket. For example, when interest rates rise your stocks might fall while your fixed income might go up. GIC ladder kinda same concept.

I suppose maybe advocate for permanent wage and price controls which include interest rate controls so we could all feel comfy, might be a popular idea for today's people.

August 2, 2022
6:30 am
AllanB
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Where do you see 2yr Gic goin and the 3yr

August 2, 2022
6:41 am
Canuck
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Bill said
I suppose maybe advocate for permanent wage and price controls which include interest rate controls so we could all feel comfy, might be a popular idea for today's people.  

I was thinking more along the lines of the government not spending money that it doesn't actually have to the extent that it has been doing so. My understanding is that the main thing which has caused this level of inflation was stimulus / easy monetary policy during a period when many people were not even working due to COVID restrictions. Sure there are other contributing factors, but it seems like unrelenting deficit spending and easy money from the CB create the moral hazard in the first place. If we had a more resilient economy then we might be better positioned to weather the storm of supply chain shortages and all of the other secondary and tertiary contributing factors. But no, I'm not suggesting price controls.

August 2, 2022
8:40 am
Bill
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I agree, Canuck, just kidding about state-managed economy, etc but we were about 2 minutes into the pandemic when the media started the drumbeat that people need money NOW to pay their rent, etc, so in fairness the authorities were doing what the public wanted, as should be in a democracy. So much more deficit spending, moral hazard, etc is to be expected, in my view.

I find financial planning goes a lot easier when one is clear-eyed about the general attitudes in one's society.

August 2, 2022
9:18 am
AltaRed
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Norman1 said
The big Canadian banks can't raise funds at Government of Canada rates. None of them have the matching AAA debt rating.

The banks usually issue bonds around the rates of provincial bonds. But, the rates of bank bonds are also elevated. For example, Scotia iTRADE is offering bonds of TD and CIBC maturing in 2023 with yields to maturity around 3.75%.  

I took a look this morning at that grouping. Virtually all of the 1-5 year maturities are now in the 3.75-3.85% range. The yield curve is flat. I was a bit surprised, but probably should not have been, that the spread of AAs is circa 70bp or so with GoC.

August 2, 2022
10:02 am
Canuck
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Bill said
I agree, Canuck, just kidding about state-managed economy, etc but we were about 2 minutes into the pandemic when the media started the drumbeat that people need money NOW to pay their rent, etc, so in fairness the authorities were doing what the public wanted, as should be in a democracy. So much more deficit spending, moral hazard, etc is to be expected, in my view.

I find financial planning goes a lot easier when one is clear-eyed about the general attitudes in one's society.  

Well the people aren't always right. If the government wants to maintain this level of spending then they should propose to substantially increase taxes to better support it (not saying I'm in favour of this). But they would also have to substantially increase taxes on the middle class, and the government doesn't have the guts to do that because the people don't like paying higher taxes and they will reject it. But the government likes spending money, so deficit spending and easy money is ... easier. But the cost is always realized eventually.. even if it comes out sideways, as we're seeing.

August 2, 2022
10:18 am
AltaRed
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AllanB said
Where do you see 2yr Gic goin and the 3yr  

That may be the sweet spot for GIC rates at this time for alternate lenders especially, if we assume more people are opting for more 2 and 3 year fixed term mortgages on a bet they will be able to avail themselves of lower rates once inflation rolls over and BoC starts lowering interest rates again.

GICs are not intended to be part of my investment portfolio, but I would consider 1 year GICs for part of my 'cash reserve' funds. EQ Bank appears to be near the top right now for 1 year but I think we will see some upward creep with the next BoC rate increase. 2 and 3 year GIC rates may not move at all since the bond yield curve is either flat or inverted. Who knows? Maybe rates will be more or less flat across all 1-5 year terms by the end of September.

August 2, 2022
1:21 pm
Bill
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Gov't doesn't like to spend money, gov't likes to stay in power. If people demanded austerity or else we turf them gov't would like austerity too. Not gonna happen, plan accordingly.

August 5, 2022
10:42 am
savemoresaveoften
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Alexandre said

savemoresaveoften said
Zero chance of 1y reaching 5% by august.

I bookmarked this forum topic and put reminder in my calendar for August 31st to check 1 year GIC rates. Will it be "never say zero chance?" Will see.  

Looks more and more unlikely for 1y to ever reach 5%, esp with 5y rate are already moving down which is the strongest signal ever.

August 5, 2022
12:07 pm
agit
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savemoresaveoften said

Looks more and more unlikely for 1y to ever reach 5%, esp with 5y rate are already moving down which is the strongest signal ever.  

opinion vs fact

Bonds jumps this morning after USA jobs growth blows past expectations . Yesterday Bank of England raises rates by most since 1995. The BOE also boosted its forecast for the peak of inflation to 13.3 per cent in October, and warned that price gains will remain elevated throughout 2023. cnbc

The Inflation STILL is the big elephant in the room

The fed funds rate, which is the central bank’s benchmark, likely will have to go to 3.75%-4% by the end of 2022, Bullard estimated -----> read the full article here

RBC, BNS and CIBC forecast overnight target rate Q422 3.50% --nochange----> to Q423 3.50%

Fed rate hikes expected to become more aggressive after strong jobs report cnbc here

August 5, 2022
12:17 pm
Bill
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It was the same decades ago when we had crazy inflation, it was always going to stop soon said everybody but it just kept going up. Fact is neither authorities nor anyone has a clue how it's all going to play out in the end.

August 5, 2022
12:20 pm
savemoresaveoften
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agit said

opinion vs fact

Bonds jumps this morning after USA jobs growth blows past expectations . Yesterday Bank of England raises rates by most since 1995. The BOE also boosted its forecast for the peak of inflation to 13.3 per cent in October, and warned that price gains will remain elevated throughout 2023. cnbc

The Inflation STILL is the big elephant in the room

The fed funds rate, which is the central bank’s benchmark, likely will have to go to 3.75%-4% by the end of 2022, Bullard estimated -----> read the full article here

RBC, BNS and CIBC forecast overnight target rate Q422 3.50% --nochange----> to Q423 3.50%

Fed rate hikes expected to become more aggressive after strong jobs report cnbc here  

What’s happening on other side of the pond has little bearing for Canada

Fed gets to 4% before pausing is very possible

BoC o/n rate gets to 3.5% also very plausible, no evidence to argue against that.

1y GIC to reach 5% by end of August: it just won’t happen and yes that’s my opinion based on my experience over the years. My biased wish is for it to get there, reality is it won’t.

August 5, 2022
12:25 pm
Alexandre
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savemoresaveoften said
Looks more and more unlikely for 1y to ever reach 5% 

Ha! Got you there. Now, instead of waiting till end of August 2022 to prove you right, I can wait as long as I need to, to prove you wrong. 🙂

August 5, 2022
1:03 pm
agit
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Bill said
Fact is neither authorities nor anyone has a clue how it's all going to play out in the end.  

That exactly my point "neither authorities nor anyone has a clue".

However The inflation is STILL very high and CB must do everything to bring it down and they are prioritize inflation fight over growth. If they failed central banks will have to do more and tighten more aggressively to cool the economy, and unemployment will likely have to rise significantly.

IMO will have a better picture in Q123 untill then the rate are going one way "up"

August 5, 2022
1:30 pm
savemoresaveoften
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Alexandre said

savemoresaveoften said
Looks more and more unlikely for 1y to ever reach 5% 

Ha! Got you there. Now, instead of waiting till end of August 2022 to prove you right, I can wait as long as I need to, to prove you wrong. 🙂  

haha u caught my unfinished sentence. This is what it should read:

"Looks more and more unlikely for 1y to ever reach 5% by end of August "

To claim 1y to never ever reach 5% is a dumb statement, even I am not that dumb to make that kind of claim sf-laugh

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