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GIC's have broken 5%
July 11, 2022
1:59 pm
Bill
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No grandfathering for pre-existing, though I think for some that had been set up relatively recently there was up to a 3-year grace period but that's over now.

Far as I know estate freezes are still around, don't really know anything about them.

July 11, 2022
5:35 pm
Norman1
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A testamentary trust in Canada can still elect to be a graduated rate estate for its first 36 months.

The Canadian tax rules are moot for foreign trusts. Foreign trusts are subject to the income tax laws of the country they are resident in and not Canadian tax laws.

July 11, 2022
7:12 pm
COIN
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"Far as I know estate freezes are still around, don't really know anything about them."

In simple terms:
1) Parent(s) own a corporation.
2) Parent exchange their common shares for equivalent value preferred shares.
3) Kids get common shares so future growth in value of the corporation accrues to the kids.

July 15, 2022
12:37 pm
HermanH
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Other than Motive, has anyone seen 5-yr+ rates over 5.15% for anyone anywhere?

July 19, 2022
10:15 am
HermanH
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Just saw Ideal Savings go to 5.05% for 5-yr GIC

July 19, 2022
1:20 pm
AltaRed
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I sort of doubt we will see more moves of any significance on 5 year GIC rates. The GoC 5 year bond has actually dropped about 40bp in the past month to about 3.1%, and if a significant percentage of people place much belief in what Tiff Macklem says, BoC expects inflation to drop to about 2% by the end of 2024. Why would many sign up for a 5 year fixed rate mortgage today when a 2-3 year mortgage puts them in that potential future 'window'?

The curve has gone essentially flat, and institutions that can readily go to the BoC bond market for capital, the curve may go totally flat within a few months.

July 19, 2022
1:54 pm
Loonie
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That makes good sense, AltaRed.
I happen to think Tiff is wrong. He's certainly been wrong before. think what he means is, "if my strategies work, ..."
However, the majority will probably believe him - and they may be right.
There has been a lot of resistance at ~5% from the FIs. Rates are getting steadily flatter.

July 19, 2022
4:11 pm
NCC1701Z
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I've seen little change checking long term corp and gov bond yields - all near 4-4.5%

July 19, 2022
4:58 pm
AltaRed
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NCC1701Z said
I've seen little change checking long term corp and gov bond yields - all near 4-4.5%  

The information is readily available here https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/ Nothing remotely approaches even 3.5% and the yield curve is inverted.

Corporate bond yields do not factor into (are not relevant to) FI rate setting.

July 19, 2022
6:01 pm
Norman1
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I retrieved a quote from Scotia iTRADE.

Government of Canada 2% bond maturing 2051-Dec-01. Trades at a yield to maturity of 3.03%.

Bond rates alone don't really dictate GIC rates. If 3½% for one-year GIC's brings in one-year GIC money at a flow that matches RBC's placing of one-year loans, then 3½% will be RBC's rate for one-year GIC's.

Why pay the 4.3% that EQ Bank needs to when RBC doesn't need to?

July 19, 2022
7:19 pm
agit
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GIC vs Bonds

GIC rates are influenced by the Bank of Canada policy interest rate.
vs
the fundamental principle of bond is that market interest rates and bond prices generally move in opposite directions. When market interest rates rise, prices of fixed-rate bonds fall. so if interest rates increase above the bond's coupon rate, the bond becomes less attractive.

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July 21, 2022
10:58 am
hwyc
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NCC1701Z said
7 to 10 year rates are now 5%!

6 year is 4.85%

https://www.motivefinancial.com/en/rates

Highest rates since the 90's  

… It is now almost end of July. And my expectation is too see 5% for a 3-yr term in August.

July 21, 2022
7:01 pm
NCC1701Z
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AltaRed said

The information is readily available here https://www.bankofcanada.ca/rates/interest-rates/canadian-bonds/ Nothing remotely approaches even 3.5% and the yield curve is inverted.

Corporate bond yields do not factor into (are not relevant to) FI rate setting.  

Was thinking Prov bonds at ~4%. Just as safe IMO as GoC bonds

July 22, 2022
5:04 pm
AltaRed
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Those speculating on GIC rates would do well by reading Rob Carrick's piece in the G&M (subscribers only) https://www.theglobeandmail.com/investing/markets/inside-the-market/article-rob-carrick-why-gic-rates-didnt-pop-after-the-big-jump-in-the-bocs/?utm_medium=email&utm_source=Globe%20Investor&utm_content=2022-7-22_18&utm_term=These%20market%20sectors%20are%20your%20best%20bets%20right%20now.%20Plus%2C%20why%20we%20may%20have%20reached%20peak%20GIC%20rates&utm_campaign=newsletter&cu_id=Q8RvGKY792WRonw7uy%2BiXlsO6IS7G1%2Bu

A few key quotes from the article based on a discussion with an official at EQ Bank...

“GIC rates are heavily driven by the competitive market for GICs,” Ms. Poddar said. “But, generally, they’re priced based on a spread to Government of Canada bonds. They don’t actually get priced using the Bank of Canada benchmark rate.”

The GIC market is highly competitive these days, notably among alternative financial institutions like EQ that compete with the big banks to attract clients and their money. Ms. Poddar said EQ continually balances rates offered by competitors against its own need to attract funds that can be used in the mortgage lending business of its parent, Equitable Bank.

A trend to keep your eye on if you’re a GIC rate watcher: concern about rising rates causing a recession has pushed bond yields down from a mid-June peak for the year of 3.5 per cent. Competition between alternative banks and credit unions remains aggressive, but what’s happening in the bond market suggests GIC rates may have peaked for the near term.

July 22, 2022
5:44 pm
Loonie
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Thanks, AltaRed. That's the confirmation I needed for my own suspicions which were just based on watching the minimal movements in GIC rates recently.

July 22, 2022
7:19 pm
agit
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of course EQ want you to buy their GIC now, but suggesting that GIC not actually get priced using the Bank of Canada benchmark, is laughable, actualy the bond is linked to what interest rates are doing not the other way.

The Bank of Canada’s policy rate serves as a reference for the rates that the banks charge to consumers ie LOC mortg etc HOWEVER The banks aren’t obligated to raise savings account, GIC interest in proportion to borrowing interest rates, but competitive pressures may eventually result in a rise.

Buying GIC now or wait 3-6 months that entirely up to you.

The GIC and or rate will peak when inflation is under 4-5% or under control and CB pause. CB rate still going up

July 22, 2022
7:42 pm
phrank
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GIC rates may have peaked in the short term if by short term you mean there will be minimal movement before the next 2 rate increases by the BoC in Sep & Oct. I still wouldn't lock into anything more than a quarterly redeemable term, because the only thing I believe is that rates are still going up, but how much is TBA. As long as inflation is out of control the risks are much higher for those making extreme decisions like 5 year terms. I also believe the majority still think this way and that makes my thoughts a self fulfilling prophecy sf-laugh

July 22, 2022
8:42 pm
AltaRed
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GIC rates are correlated with GoC bond yields, i.e. the 5 year to GOC5, 4 year to GOC4, etc. It has always been that way.

The spreads are not constant of course because it depends on how much capital an FI needs of a particular term (1, 2, 3, 4, or 5 years) to write mortgages. Hence why one sees differences in the rates being offered by each institution for each of the various fixed terms. For example, the top eight offering ~5% for 5 year have some substantial differences between them at lower fixed terms.

I have seen spreads between bond yields and GIC rates of less than 100bp at times and more than 200 bp at times (currently 180 bp or so at the 5 year level). With GOC5 yield having come down a fair bit in the past 30 days, I don't see upward movement happening in GIC 5 year rates any time soon.

Added: Whether GIC rates go beyond 5% will depend on bond yield curve changes for the most part.

July 25, 2022
10:17 am
COIN
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Will the U.S. Federal Reserve announcement this Wednesday affect Canadian GIC Rates?

July 25, 2022
10:47 am
AllanB
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Subsidized low interest rates, deficit spending borrowing is same as quantitative easing (QE). Nobody lends under 9% without guarantees or solid collateral. Condo and home loans with 20% or less down are bad loans without taxpayers.

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