Financial fluctuations with global economic conditions

Interest rates have been very interesting to watch over the past few years and they’ve not disappointed as of late either.

Government bonds have recently been dancing around all time lows, and these bonds are essentially what price the fixed interest rates at the banks and mortgage lenders.

Even though the bond rate is hitting record lows right now, banks usually follow with either a drop or an increase.

But the banks haven’t let up for about six weeks now. The bond rate has been hovering around the 1.35-1.55 level for the past five to six weeks and lenders have been providing interest rates in the 3.29-3.59 range.

Because of competition, lenders and banks typically have a yield of about 1.20-1.60% above the bond rate, which means that we should be at the 2.55-3.15 range for five-year fixed rates. But there’s a lot of uncertainty out there with regards to the Eurozone debt crisis’, the United State’s puttering economy and China’s first sign of a slowing economy from their second quarter releases.

There’s another problem out in the deposit taking world – the banks that don’t borrow their money from the government to lend out to the consumer. Deposit taking banks (think RBC, TD, ATB etc. and credit unions) are currently giving consumers 2.50%-3.35% for their large deposits but in this current environment are lending it out at almost the same rate that they are taking it in.

This doesn’t pose well for the banks’ bottom line as there’s no profit in lending the money out at the same price one takes it in. My guess is that even though they are lending it out for even money, they will have to be more aggressive with marketing all of their products to those consumers once they have them on the balance sheets.

When you put all of that together lenders aren’t as trigger happy as they’ve shown in recent past rate drops.

But if these bond rates do persist at these same levels then we should be seeing further rate drops, but alternatively if there’s any positive news in the global economy then look for a spike in the bond rate and thus a quick increase to mortgage rates. Gravity doesn’t apply to interest rates, they rise faster then they fall.

Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for appointments at 403-343-1125 texted to 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.

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