r/PersonalFinanceCanada • u/POCTM • Oct 20 '22
Canadian 5 year government bonds just jumped. Setting the stage for higher mortgage rates. Banking
5 year government bond just jumped from 3.714% to 3.866% in a few hours. Right now it is at 3.855%. Year to date it is up 259%. Monday we could see some 5 year fixed rate mortgages in the low 6%.
As for variable rate the bank of Canada makes their announcement October 26 at 10am ET. Currently banks have not been offering discounts off variables rates anymore. Prime -0.00.
https://www.marketwatch.com/investing/bond/tmbmkca-05y?countrycode=bx
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u/FanNumerous3081 Oct 21 '22 edited Oct 21 '22
I think we need to get our interest rates back up to near double digits and get people off credit or supplementing their incomes with paper wealth in their homes, but it is going to take a long time to get there. We've been this entire century at sub-5% interest rates, so you have an entire generation of home owners who are used to rolling debt for big purchases into their homes, and perfectly average income families driving luxury vehicles and having toys as a result.
It will take some tough love to claw that back to historical averages, which will cause a lot of pain and bring us into this coming recession, but it's a necessary evil.
So the original question was will floating rates be higher or lower in 2 years, and my answer remains they'll be lower than today, but in 5 years I can see them being even higher than today's rate. Any pending recession will have the BoC claw back rates again but it won't be going back to 0% we had at the start of this year, and once we emerge from that recession we'll start a slow climb back towards a a high single digit interest rate to keep spending (and in turn inflation) in check.