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If Bank of Canada Lowers Rate This Week, Then What?
March 2, 2020
6:47 am
GR
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If the Bank of Canada lowers its rate March 4th, will most financial institutions, large and small, start lowering their rates on GICs and Savings Accounts?

March 2, 2020
7:01 am
Bud
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Locked in last week just in case seems rates are goin nowhere to down for a while

March 2, 2020
10:46 am
Vatox
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Rates are definitely not going up! Look at the five year bond, it’s at a new 52 week low.2062C58A-9170-45D2-BD3E-69220CB19EC0.png216E202D-DDE1-40AD-8B62-E5FF865A01FD.png

PS: if BoC raises rates, FIs would generally raise their rates, although usually at a later date and probably not the full increment either.

March 2, 2020
9:00 pm
picassocat
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The US federal reserve is expected, from many, to cut interest rates, twice in the next two quarters. With the Covid-19 menacing global economies and a world recession, Canada should follow in the same direction and cut rates. With this week’s market correction, bank profits are down (I won’t cry here) but that may provoke them in decreasing interest rates on their HISA.

March 2, 2020
9:55 pm
Vatox
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picassocat said
The US federal reserve is expected, from many, to cut interest rates, twice in the next two quarters. With the Covid-19 menacing global economies and a world recession, Canada should follow in the same direction and cut rates. With this week’s market correction, bank profits are down (I won’t cry here) but that may provoke them in decreasing interest rates on their HISA.  

I agree that the BoC might be tempted to lower rates, but I’m thinking that will just add more bang to the inevitable bomb explosion that’s coming. I’m still looking for a rate hold.

March 3, 2020
5:39 am
savemoresaveoften
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Assume OP means BOC cuts 25 bps , the banks will follow but not necessarily full 25 bps for their prime rate. Also GIC are more tied to mortgage rates, which are tied to bond yield. You wont see an immediate drop in GIC rates even if bank cuts.
Having said that, since RRSP season is over, there is a natural drop in GIC rates and promo rates in general anyway.
Tangerine offering 3% selectively just to make some noise in the mkt and spend it as advertising money. "Tangerine now offers highest rate" a good ad campaign...

March 3, 2020
7:55 am
Vatox
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The Fed just cut it’s rate by 50 bps.sf-surprised

March 3, 2020
9:45 am
Bud
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Vatox was right on the inverse yield curve it predicted the fall but he got a little help from corona. Lesson learned follow the 5yr 10yr bond closely. He's our resident economist.

March 3, 2020
11:02 am
Vatox
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I still have my fingers crossed that cooler heads will prevail tomorrow and we get a rate hold, but with the 50 bps cut in the U.S., I’m thinking Poloz will cut. Hopefully it’s just 25bps and not 50 bps.

March 3, 2020
11:12 am
Vatox
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Not looking good...

5B5F0469-1F29-4DB6-8BE4-23B5406FDB0E.png

Almost at 100 bps below the overnight rate!

March 3, 2020
11:16 am
savemoresaveoften
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Poloz will cut min 25 tomorrow. Judging from the 5y bond, expect 5y GIC will be lowered very shortly too.

March 3, 2020
9:02 pm
picassocat
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Well, after the Federal Reserve rate cut, the day was excellent for bonds, especially long-term bonds; they are more positively affected than short or medium term ones. The cut in itself sent a panic signal to the markets, the Dow Jones was holding until then. Regardless, expect volatility and more volatility until calm is returned, and that may take a long time. I sold all my stocks at the right moment and I’m not buying-in for now: there is a time to buy, a time to sell and a time to hold. It’s time to hold. I may buy more bonds and inverted index ETF’s, betting against the market. Holding cash isn’t a bad idea either and that’s were a HISA comes in. I just deposited a large amount in my B2b bank account, its safe there. I know there are good stock prices out there, but don’t rush to the market just now, wait. It’s like a waterfall, there the high fall, (correction) a splash (markets try to rebound) then a slow trickle down to the lake. Wait.

The Bank of Canada will follow with cuts and the banks will follow suite. Expect your HISA to drop.

March 4, 2020
9:05 am
Vatox
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We are screwed now! Poloz dropped the rate by 50.

March 4, 2020
9:58 am
Bud
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Why V

March 4, 2020
10:46 am
Doug
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Bud said
Why V  

I assume Vatox means because of the larger-than-anticipated interest rate cut and the strong language on future "coordinated" policy actions. I concur with that assessment.

We are likely to be at 0.75% by this time next year.

Those that can find 2.6-3.0% GIC rates, or those in Motive's and LBC Digital's 2.8% HISA, should strongly consider locking in, at least in part, their funds now we I expect a veritable flurry of rate drops. This forum is about to be bombarded with users posting interest rate drops...

Manitoba CUs' HISA rates are headed to ~2%; Motive and LBC Digital likely headed to 2.25-2.50% respectively; Motus Bank and Alterna Bank are headed to 1.50%, and Peoples Trust/Peoples Bank are likely headed to 1.75%.

Tangerine's base rate is headed, full stop, at least 0.50% lower, which, in turn, effects the promotional interest rate, so if your current offer is 2.75-3.00%, it's about to go to 2.25-2.50% for the remainder of the offer.

Cheers,
Doug

March 4, 2020
11:18 am
Bud
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bit late recommendin lockin in doug u shoulda done last week. fortunately i did 😉

March 4, 2020
11:23 am
Vatox
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My thoughts exactly Doug. And in addition, there will be more debt accumulation and most likely we will see initial inflation issues too. As if the broken supply chains, from China, weren’t enough to stoke inflation!

March 4, 2020
12:06 pm
Doug
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Bud said
bit late recommendin lockin in doug u shoulda done last week. fortunately i did 😉  

You misread what I wrote. I locked in January 30, 2020, as I said elsewhere. 😉

Of the percentage of assets I have allocated to cash (~65%) across my accounts, my maturities and interest rates are as follows:
- ~47% in a 4.00% GIC with Coast Capital Savings maturing December 1, 2020;
- ~17% in a 3.02% GIC with Concentra Bank maturing July 30, 2021;
- ~26% in brokerage HISAs with Scotia iTRADE averaging 1.65%;
- ~10% in bank and credit union HISAs, mostly with Hubert Financial, currently paying 2.25%.

Yes, I am significantly overweight cash and have been since 2014. 🙁

Cheers,
Doug

March 4, 2020
12:51 pm
Brimleychen
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Vatox said
My thoughts exactly Doug. And in addition, there will be more debt accumulation and most likely we will see initial inflation issues too. As if the broken supply chains, from China, weren’t enough to stoke inflation!  

The central bankers have been pushing Canada to become Japan. I think most of people here only worry about savings interest, but the real problem is our exchange rates. Generally, we will be poorer as a result, in comparison with the rest. Just look at Toronto RE for rocket high, and who will be buyers. Just check it out.

March 4, 2020
2:17 pm
Doug
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Vatox said
Not looking good...

5B5F0469-1F29-4DB6-8BE4-23B5406FDB0E.png

Almost at 100 bps below the overnight rate!  

Oh vey! Rate reset preferred shares that are resetting this year, and probably next year, are going to get clobbered—regardless of whether they have a built-in "floor" or not (so-called "minimum rate resets").

In short, don't buy rate reset preferred shares yet until they're 40-60% below their par value.

Cheers,
Doug

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