Why Are Some Rates Increasing?? | GIC discussions | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Why Are Some Rates Increasing??
March 23, 2020
10:42 am
GR
Member
Members
Forum Posts: 252
Member Since:
September 15, 2017
sp_UserOfflineSmall Offline

Can any "experts" reading this provide possible reasons why some FIs have raised rates, while all others have significantly lowered theirs in the past month?

Oaken Financial increased GIC rates to be the highest and had a full page ad in Saturday's Toronto Star.

Tangerine increased 1 yr & 18 m GIC rates to their highest in many months.

Canadian Tire Bank increased GIC rates and are now very competitive for the first time in a long time.

Duca Credit Union extended their 3% promo on savings accounts another month to June 30.

March 23, 2020
11:22 am
Loonie
Member
Members
Forum Posts: 5911
Member Since:
October 21, 2013
sp_UserOnlineSmall Online

I can't say what their reasoning is, and i am not an expert of any kind.

However, a few observations:
Bond rates for countries that are considered unstable or higher risk are normally higher.
Our dolar has had a rough couple of weeks.
Price of oil is extremely low and we are linked to it.
Different FIs will assess these factors differently.
Many Canadians have suddenly found themselves unemployed or underemployed and will be drawing on their savings which could create liquidity problems.
Nobody knows what's coming next economically.

March 23, 2020
11:39 am
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3254
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

GR said
Can any "experts" reading this provide possible reasons why some FIs have raised rates, while all others have significantly lowered theirs in the past month?

Oaken Financial increased GIC rates to be the highest and had a full page ad in Saturday's Toronto Star.

Tangerine increased 1 yr & 18 m GIC rates to their highest in many months.

Canadian Tire Bank increased GIC rates and are now very competitive for the first time in a long time.

Duca Credit Union extended their 3% promo on savings accounts another month to June 30.  

Cross-posting this Canadian Tire Bank-specific reply as it touches on GR's question.

Don't forget what Canadian Tire Bank funds with its GIC deposits: credit cards, which yield at least 19.95% or higher, per annum, excluding fee-based income. Sure, many people pay off their credit cards each month, so on the collective balances, they're not earning 19.95%. As well, being unsecured credit, credit cards will have higher losses than, say, mortgages. So, their spread isn't truly 17%. However, they've been enjoying wildly successful profitability by under-paying on GICs and HISAs for years.

At the same time, the stock of Canadian Tire Bank Corporation Ltd is down on the order of 40-50% or more. They have a lot of debt beyond just their deposit liabilities. They also fund their credit cards through the Glacier Credit Card Trust, and the credit markets have seized up. That's why the Fed and BoC have announced, or are hinting at announcing in the latter case, at unlimited QE. It may well be that they can't do any new issuances under GCCT, or they've had redemption requests at GCCT, and so they're needing to utilize their previously under-utilized deposit channel.

Irrespective of the credit markets generally, CTC may have breached a credit covenant on their non-deposit debt and had to repay some of that debt. In turn and indirectly, that could affect the amount of capital they hold for their Canadian Tire Bank subsidiary by OSFI. I wouldn't be surprised if Canadian Tire Bank is being watched very closely by OSFI right now—others being the smaller private and publicly-traded mid-tier Canadian banks and trust companies.

This is a good example of how deposit rate changes are not tied exclusively to the BoC's Policy Interest Rate. Think of that at as more of an indicator; it's much more influenced by the bond market yields and the access to and liquidity of the credit markets.

Cheers,
Doug

March 23, 2020
3:37 pm
Bill
Member
Members
Forum Posts: 1676
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

When someone exhibits unusual behaviour, plus it involves luring my money, well I'll just keep my distance, thanks.

On the other hand, maybe it's worth taking the chance, the most-stressed fi's would be the ones to fail first, i.e. when CDIC still has lots of money.

March 23, 2020
6:23 pm
_Ax
YYZ
Member
Members
Forum Posts: 14
Member Since:
May 25, 2017
sp_UserOfflineSmall Offline

It's all about a banks liquidity, rates will fluctuate depending on their short, medium and long term needs. FI's will usually offer 25-50 bps over others if they have a short term need, 12-18 months will usually be in that category; once they mop up what they need, the rates will align with their peers.

March 24, 2020
5:55 am
3oakwest
Ontario, Canada
Member
Members
Forum Posts: 147
Member Since:
April 7, 2016
sp_UserOfflineSmall Offline

@Bill

Does anyone think we should be cautious of Oaken Financial?

March 24, 2020
6:02 am
Brimleychen
Member
Members
Forum Posts: 241
Member Since:
September 5, 2013
sp_UserOfflineSmall Offline

It is a liquidity issue. In bad time, cash is the King.

Just read the news print. Canada Life halts redemptions on real estate investment funds.

March 24, 2020
6:53 am
GR
Member
Members
Forum Posts: 252
Member Since:
September 15, 2017
sp_UserOfflineSmall Offline

Good news for GIC investors. Surprising and fascinating. In addition to increased rates in my post #1 yesterday, more FIs have now INCREASED GIC rates.

Canadian Tire Bank - another increase today after yesterday's increase (must be desperate?). Range from 1 yr 2.40% to 5 yrs 2.50%.

EQ Bank - Range from 1 yr 2.40% to 5 yrs 2.55%.

Bridgewater Bank - Range from 1 yr 2.31% to 5 yrs 2.52%.

Haventree Bank - Range from 1 yr 2.36% to 5 yrs 2.41%.

Oaken is still the highest, which arouses suspicion.

Explanations?

March 24, 2020
9:16 am
Bill
Member
Members
Forum Posts: 1676
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

3oakwest, I've no specific info re Home group, it's just that if any fi's are going to fail in the coming economic difficulties then to me Home would be near the top of the list. GR's list of fi's that are increasing rates, i.e. smaller, peripheral players, bolters my view. My view is that obviously big banks can fail too, but governments, etc will do a lot more to keep (example) RBC alive vs Home goup. But I'm kind of a contrarian in some respects here, I'm not a fan of GICs in a portfolio during these times so GIC interest rates of particular fi's are not really something I know much about.

Not sure what the @ is, name's Bill.sf-wink

March 24, 2020
9:24 am
Norman1
Member
Members
Forum Posts: 2883
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Not necessarily desperate. Could be an increase in funding costs from increases in the corporate bond market interest rates.

Those drops in the Bank of Canada rates apply directly to Government of Canada bonds and the like. There is a resulting pull downwards on the rates on corporate bonds. But, that pull can be easily overcome by other concerns.

AltaRed mentioned that there were no bids/buyers for some corporate bonds!

I suspect interest rates are actually higher now on corporate bonds and not lower. That is especially true for companies that are unrated or have a lower debt rating than one of the provinces.

Home Trust Company and Home Bank, who are behind Oaken-branded GIC's, are two such companies. Home Trust Company is rated BBB(low) and Home Bank is unrated. In contrast, Province of Newfoundland and Labrador is rated A(low).

March 24, 2020
10:24 am
Brimleychen
Member
Members
Forum Posts: 241
Member Since:
September 5, 2013
sp_UserOfflineSmall Offline

https://www.bloomberg.com/news/articles/2020-03-24/mortgage-bonds-rattle-wall-street-anew-with-rush-of-urgent-sales

The $16 trillion U.S. mortgage market -- epicenter of the last global financial crisis -- is suddenly experiencing its worst turmoil in more than a decade, setting off alarms across the financial industry and prompting the Federal Reserve to intervene.
...
Interest Rates Up

Banks are facing pressures that will make it hard for them to step in by making or purchasing mortgages others are dumping. Corporate borrowers have been drawing down credit lines at banks, siphoning off cash and raising the prospect that the lenders will eventually incur losses.
...
Interest rates on traditional 30-year fixed-rate mortgages typically follow yields on the 10-year Treasury note, a benchmark that helps determine the cost of borrowing throughout the U.S. economy. But this month the gap between the two is set to reach a record, according to monthly data compiled by Bloomberg dating to 1998, in a show of how tumult in markets impacts what the average American has to pay on a mortgage.
...

March 24, 2020
12:51 pm
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3254
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

3oakwest said
@Bill

Does anyone think we should be cautious of Oaken Financial?  

Now is definitely the time to ensure you stay within your CDIC insurance limits, which, if you want to be especially cautious, means leaving the principal value of your GICs below $100,000 to ensure the accrued interest paid at maturity is within your limits.

For Home Trust Company/Home Bank, Equitable Bank/Equitable Trust, and especially Canadian Tire Bank and Bridgewater Bank, this is especially true. Do not exceed your CDIC limits. As small financial institutions, they would be the first to fail, and the federal government would be less likely to step in and make people whole as they would if a Big 5 bank (or banks) were to fail. Of course, it's equally possible that another financial institution would acquire all the deposits in exchange for not having to honour interest rates to term, but that's still not a guarantee. So, to be absolutely safe, do not exceed your CDIC limits for those issuers.

For the issuers rate as A or higher (Concentra Bank, Manulife Bank, Big 8 banks and related subsidiary banks), you can still comfortably exceed your CDIC limits. By "Big 8," I'm referring to the Big 5 plus National Bank, Manulife Bank, and HSBC Bank Canada; Tangerine and Simplii Financial are included within "related subsidiary banks." Laurentian Bank is rated below that of Canadian Western Bank, so I would be cautious with them. Treat them as better than Canadian Tire Bank or Bridgewater Bank and the others named in the first paragraph, but not as good as the other 8-9 banks.

Cheers,
Doug

March 24, 2020
1:13 pm
toto
Member
Members
Forum Posts: 232
Member Since:
August 17, 2010
sp_UserOfflineSmall Offline

Thanks Doug! Almost pulled the trigger on Oakens rates, and would have been over cdic limit. I instead got tangerine 2.3 for 18 months , and will sleep better.
I'm a little overexposed at Canadian western, might move some of that too.

March 24, 2020
1:46 pm
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3254
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

toto said
Thanks Doug! Almost pulled the trigger on Oakens rates, and would have been over cdic limit. I instead got tangerine 2.3 for 18 months , and will sleep better.
I'm a little overexposed at Canadian western, might move some of that too.  

No problem, but to be clear, I have no problem with Oaken or Equitable staying within CDIC limits. Maybe you are already at your limit with Oaken then, though? If that's the case, that's probably a good move. The difference between 2.3% and even 3.02% that I got at Concentra Bank a couple months ago on $100,000 isn't that much, really. So, the difference between 2.3% at Tangerine and 2.5% is even less. You are a very cautious saver, as I've come to see, and you will definitely feel better knowing it's secured in a purple security blanket. 😉

For what it's worth, not sure if you've considered buying some corporate bonds instead of equities. Sure, beaten down equities have a higher potential return, but I was just perusing corporate bonds rated as A or higher (high investment grade), and there's quite a few bonds, below their par value, yielding between 2.75% and 5-7%, the highest being Husky Energy Inc bonds which Scotia iTRADE reports as A(low). However, there were some CIBC and Scotiabank bonds, maturing in less than 5 years, for below par value (meaning you'd incur a nominal capital gain at maturity) for ~4-5%. Something to think of...if you're comfortable exceeding CDIC limits with Big 5 banks, the banks' bonds are worth a look. I know @AltaRed does this when the yields are better than GICs.

Cheers,
Doug

March 24, 2020
2:44 pm
Bud
Member
Members
Forum Posts: 969
Member Since:
February 20, 2018
sp_UserOfflineSmall Offline

what were husky cibc n scotia bonds at principal and yield?

March 24, 2020
2:45 pm
toto
Member
Members
Forum Posts: 232
Member Since:
August 17, 2010
sp_UserOfflineSmall Offline

Thanks for all the info! I'm playing around with investorline and getting familiar. Haven't bought any dividend stocks yet , but big 5 banks are on my list.
I hadn't looked at corporate bonds , but I will now !
As for Oaken, I was a little paranoid today so called CDIC to reassure that all my gics are insured. I have single/joint/in trust, in both home bank and home trust. I'll be over with the interest, but I can live with that , especially because all of them are annual interest payout.

March 24, 2020
3:52 pm
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3254
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

Bud said
what were husky cibc n scotia bonds at principal and yield?  

@Bud and @toto,

Figure 1:  Corporate bonds 1-10 year maturities rated A or higher, below par value; no minimum yield, part I
Figure 1: Corporate bonds 1-10 year maturities rated A or higher, below par value; no minimum yield, part I

Figure 2:  Corporate bonds 1-10 year maturities rated A or higher, below par value; no minimum yield, part II
Figure 2: Corporate bonds 1-10 year maturities rated A or higher, below par value; no minimum yield, part II

Some of these are longer than 5 years, sorry about that. However, there are some interesting short term anomalies—i.e., a Canadian Western Bank bond maturing in 2022 that, at the current ask price, will yield 3.5%. Could make sense for some folks.

Cheers,
Doug

March 24, 2020
4:23 pm
hwyc
GTA
Member
Members
Forum Posts: 191
Member Since:
September 30, 2017
sp_UserOfflineSmall Offline

... Concentra is also joining the ranks of GIC rate rebounce.

March 24, 2020
6:02 pm
toto
Member
Members
Forum Posts: 232
Member Since:
August 17, 2010
sp_UserOfflineSmall Offline

I'm going to study this list tonight, thanks for sharing.
I see what you mean, the returns on big 5 bonds are more appealing than gics, and safe

March 24, 2020
8:02 pm
AltaRed
Member
Members
Forum Posts: 989
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

A lot of corporate bonds in that list trading under par. That is because the corporate bond market seized up, e.g. lack of liquidity. For a few dark days last week, I checked both the BMO Investorline and Scotia iTrade corporate bond inventories for short and medium term maturities. It was rare to find a corporate bond with a Bid price alongside the Ask. That simply means there were no buyers, presumably at any price.

I have not checked what BoC might do about the lack of corporate bond liquidity, but in the USA, the Fed is (or is planning on) buying corporate bond ETFs in the USA to provide liquidity. It is too difficult to buy corporate bonds individually in the quantities they need to buy, so they will be buying corporate bond ETFs off the stock exchange. I think that may be a first for the US Fed.

In a recent G&M column, I think Andrew Coyne said that Canada has the highest overall corporate debt in the developed world. I forget the specific metric but the sound bite is our corps are leveraged up. So....what that tells me is to be sure to buy A or AA debt (not lower) and be prepared to carry it to maturity. There may be no buyer if you ever wish to sell. Corporate bond ETFs have had a bad few weeks with large Bid/Ask spreads and big discounts to NAV. It is an ETF space NOT to be in at the current time.

P.S. I am only an infrequent investor in corporate bonds and they are all in my RRSP. I have an Enbridge one coming due late this year. Not sure if I will replace it with a GIC or another corporate bond, but if the latter, it has to give me a pretty good premium AND be from a sound company, e.g. a regulated utility, with almost guaranteed cash flow.

No permission to create posts

Please write your comments in the forum.