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Email this1:51 pm
September 11, 2013
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RicksBank, can't really say as I've never been much of a GIC buyer, don't know if I can remember ever having one for longer than a year term.
"Weird" times? I agree, though I'm old enough to experience that part of getting old is you think the world has gone to heck, so maybe it's just me. But it seems to me many would agree that our society has discarded as quickly as possible the old, traditional foundations, so not knowing what's to come in society in general also means more unease about the financial future. So "weird weird" would be my vote, I guess.
4:08 pm
April 6, 2013
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Bill said
… Might be as simple as the financial institution just needs, or wants to lessen, some money with those maturities, or maybe this week they need 3 year maturities more than 5 year ones, or maybe just a rebalancing is needed of their maturities going forward.…
That's all it is.
Deposit taking financial institutions are lenders that make their profit from the spread between what they pay for deposits and what they charge borrowers to "rent" those deposits. Once five-year GIC funds are "rented" out to borrowers through five-year loans, the profit is locked in, regardless of what interest rates do during those five years.
Those financial institutions are not hedge funds that speculate on interest rates. Some of them, like the Big 5 Banks, have been around for over 100 years. They know from experience that economists, including their in-house ones, can't accurately predict interest rates. So, they know better than to run their business based on such predictions.
6:38 pm
April 30, 2022
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Norman: OK, thanks. I just thought there was something tactical about the similarities between 3 and 5 year rates -- I can't recall them being so close. At one point, I think 3 year rates were even higher than 5 year rates.
I'd be interested to know what you think about rates. I know -- nobody has a crystal ball etc etc -- but, based on what you know right now, what do you think?
10:56 pm
April 14, 2021
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More mind-boggling is how a 3-yr GIC can beat a 4-yr rate:
GIC Direct May 1 3.48 3.65 3.91 3.86 3.97
1:44 pm
November 18, 2017
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Nothing mind-boggling. These "inverted yields" are the norm when bank analysts expect rates to be falling. The last two years have featured such rate tables at times, too.
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4:45 pm
March 30, 2017
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Inverted curve is the norm in a rising rate environment. Ntg special about it.
5:07 pm
October 21, 2013
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It has also been found to foretell a recession, I believe. The last time it became news, a few years ago, that was what they said.
But this is not a full inverted curve as FIs are offering higher 5 yr rates than 1 yr. We're not there - yet.
8:28 pm
April 6, 2013
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I interpret that small dip in the four-year GIC rate as Bridgewater Bank being less interested in attracting four-year funds. Similarly, Canadian Tire Bank is only looking for five-year funds:
| Institution | Amount | 1 Year | 2 Year | 3 Year | 4 Year | 5 Year |
| Bridgewater Bank (via Fiscal Agents) |
$5,000 | 3.40 | 3.61 | 3.91 | 3.86 | 3.97 |
| Canadian Tire Bank | $1,000 | 0.25 | 0.50 | 0.60 | 0.70 | 3.80 |
8:36 pm
April 6, 2013
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turquoise said
Norman: OK, thanks. I just thought there was something tactical about the similarities between 3 and 5 year rates -- I can't recall them being so close. At one point, I think 3 year rates were even higher than 5 year rates.I'd be interested to know what you think about rates. I know -- nobody has a crystal ball etc etc -- but, based on what you know right now, what do you think?
There's no tactical reason. The financial institutions are adjusting the rates for different terms to bring in deposits at a rate that matches what they are loaning out.
Too much four-year money coming in and not enough demand for four-year loans? Lower the four-year rates a bit to lower the rate people are depositing into four-year GIC's.
Not sure why people would like to speculate on rates. Bank of Canada gets to set them and they don't know exactly what, between 2% and 3%, the economy's neutral policy rate is and where they would like to increase the policy rate to.
9:04 am
November 8, 2021
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Norman1 said
Not sure why people would like to speculate on rates. Bank of Canada gets to set them and they don't know exactly what, between 2% and 3%, the economy's neutral policy rate is and where they would like to increase the policy rate to.
One should not hold his breath with the current analysts at the BoC. The current bank's governor didn't see it coming so strong...
9:14 am
February 7, 2019
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BlueSky said
One should not hold his breath with the current analysts at the BoC. The current bank's governor didn't see it coming so strong...
With all due respect, all central banks were caught off-guard with the Russian invasion of Ukraine and its impact on the global economy. In fact, I recall that just a week before the invasion Volodymyr Zelenskyy was telling the global community to calm down because Russia wasn't invading ...
| CGO |
9:36 am
January 13, 2022
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cgouimet said
With all due respect, all central banks were caught off-guard with the Russian invasion of Ukraine and its impact on the global economy. In fact, I recall that just a week before the invasion Volodymyr Zelenskyy was telling the global community to calm down because Russia wasn't invading ...
With all due respect, this situation took years to develop. Ukraine conflict might be exacerbating the situation, but it was going to happen regardless. And in Canada and the US, both central bank chiefs have admitted they got it wrong.
9:55 am
October 21, 2013
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The Canadian embassy in Kyiv closed 2 weeks prior to the invasion, our ambassador moved out, and Canadian citizens were advised to leave the country at that time.
One might quibble about the extent and severity of it, but the invasion of Ukraine was entirely predictable and anticipated. All those Russian troops weren't lined up along the border just to do morning calisthenics.
Central bankers tend to have a very narrow field of vision. I look on them more as weather vanes than weather forecasters. They can tell you which way the wind is blowing today - which you probably already knew.
10:27 am
March 30, 2017
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Central banks always got it wrong since the beginning of time. Otherwise we will always have slow steady growth with little inflation. Instead we always have economy cycle: growth/recession/growth/recession and repeats.
10:37 am
September 11, 2013
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Luckily central banks, though they have some power, are not the final arbiters of our economic health or lack thereof, their levers are not omnipotent. I personally feel the fact that virtually no-one I know, including myself, created any actual new wealth today, or yesterday, is far more impactful in the long run. But the central banks are useful, we have something to point to as being the real culprit.
10:56 am
November 8, 2021
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cgouimet said
With all due respect, all central banks were caught off-guard with the Russian invasion of Ukraine and its impact on the global economy. In fact, I recall that just a week before the invasion Volodymyr Zelenskyy was telling the global community to calm down because Russia wasn't invading ...
lifeonanisland said
With all due respect, this situation took years to develop. Ukraine conflict might be exacerbating the situation, but it was going to happen regardless. And in Canada and the US, both central bank chiefs have admitted they got it wrong.
Sorry to be blunt, but I'm with lifeonanisland on that one. These people at the BoC earn top $$$ to manage our monetary policy. Like in a war, they suppose to be alert to any developing situation that might impact this country's economy, and react to it in a timely fashion -- not months after. It seems to me that the Coronavirus has been damaging enough for two years+, but where's the planning for coming out of it?!
They had enough time to run different scenarios and act when it was appropriate to do so, but they didn't!!!
11:32 am
January 11, 2020
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They are nothing more than government clowns. If they were operating with any independence they wouldn’t have artificially suppressed interest rates blowing things up into bubble territory just to pander to Trudeaus dreams over over spending. A Prudent independent bank would have raised interest rates long before to hep keep its biggest customer , the government and its spending , in check
3:53 am
November 18, 2017
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The banks kept interest rates low to keep cash flowing in.
I go along with the observation that everyone having money (capital gains, housing bubble, COVID-19 support) without producing anything during a pandemic creates inflationary pressure. The central bank is stuck in the inflation/recession trade-off.
Government spending isn't a problem if tax revenue keeps up. But governments are kept in check by anti-tax sentiment, though for the vast majority of Canadians it's much more beneficial to spend through the government. Only the wealthiest contribute more than they get.
And they are never slow to bitch about being so lucky!
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7:34 am
April 18, 2022
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The 5yr ladder is gettin' killed.
3:46 am
November 18, 2017
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AllanB: We did get good interest on the years of our ladders that persisted while rates fell, and only now are they starting to lose ground. Many of us started shortening our ladder investments (or at least some of them) when rates hit rock bottom, as they couldn't go below zero.
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