They won't.And what if rates fall in a few months?
Taper tantrum scenario has played out a few times beforeUnder what scenario do you see rates falling in the near term? Not saying it can't happen, I just don't see how.
See what @m3s said.Under what scenario do you see rates falling in the near term? Not saying it can't happen, I just don't see how.
Ya you're right, it depends on what you do with the dividend. Bottom line is, even at 5% in this clown world I'm obligated to start locking in some decent rates. If they crash the economy/markets with higher rates, they could use that as an excuse to go back to zero rates or worse. They like to raise rates slowly but when there's a "crisis" they drop them fast.Not questioning your math that the 5% compounding in a 10 year GIC is like getting a 6.28% dividend. But I guess it depends on what you do with the dividend. If re-invested it can potentially beat the 5% compounding GIC.
Hey James, Thanks for that post. I don't disagree with pretty much everything you said.See what @m3s said.
I see many ways interest rates could fall (or QE could increase), both of which amount to the same kind of thing: more stimulus.
First thing that's guaranteed to happen is that investors and real estate investors are going to complain a lot. They're going to say the Fed has gone too far, is destroying prices and destroying the economy, and will push back. They will start begging and screaming to stop raising interest rates.
Average people may complain too. Both households and businesses rely on very low interest rates loans (lines of credit, business loans). These interest rates are going up dramatically and it's going to pinch many households and businesses. So I'm sure they will also beg and scream to stop raising interest rates.
Next is the possibility of a "market dislocation". Something in the financial markets could blow-up. For example, a crash in junk bonds, or maybe another crash in mortgage bonds. You can't ever predict what it's going to be, but when asset prices plummet, something can go severely wrong. If something blows up, then the central banks really could stop raising rates. They might even cut rates.
Another possibility is Trump. He's likely to win in 2024 and the last time he was in charge, he told the Federal Reserve to cut interest rates. He very directly interfered with Federal Reserve policy and he could easily do it again. Reducing interest rates is usually a crowd-pleaser as it's a way to juice up asset prices and the economy.
Trump is also unpredictable. He's mentally ill, so it's really hard to know what he may do. Push the Fed to raise rates? Lower rates? Who knows... a total wildcard.
Another way I see is that inflation could moderate. More supply from manufacturers, or maybe some resolution to the war, could alleviate rising prices. If inflation starts to level off and maybe looks like it's no longer running away, that changes the picture completely. At that point the central bank could stop aggressively hiking rates.
Interest rates continuing to rise for the next 10 years is likely, but not certain.
OK that's a good point, you're talking about the next 2-3 months. And I do agree that GIC rates will likely go higher in that time period.But the big caveat is that I'm considering what rates will do in the next 2-3 months before locking in any mid/longer term GIC's. Actually I really think we have at least 12 months with more increases.
Your post mostly relates to why rates could decrease in the longer term, that is longer than 2-3 months.
Yes. short term and central bank overnight rates are moving higher by direct action. However, longer term rates take their cue from market forces. For instance, last week the Fed raised their overnight rate by 0.75% and the market moved the rate on long bonds down. We are past the point in this tightening cycle when the curve is making a parallel shift. It is now changing slope and shape. So in other words you may wish to reconsider your forecast and focus specifically on the expected evolution of the rate at the term you are waiting to purchase.Hey James, Thanks for that post. I don't disagree with pretty much everything you said.
But the big caveat is that I'm considering what rates will do in the next 2-3 months before locking in any mid/longer term GIC's. Actually I really think we have at least 12 months with more increases.
Steinbach now offering Limited-time GIC special 17-month: 3.80% And Oaken at 5% for 5 year.OK that's a good point, you're talking about the next 2-3 months. And I do agree that GIC rates will likely go higher in that time period.
My middle name is Karnac. Maybe dating myself but loved that Carson bit.Timing interest rates is a dangerous game.
How do you know interest rates are going higher? Maybe they will go lower.
It could have peaked but hard to say how long it stays above 3%IMO, it's gonna take more than 2-3 months to get inflation below 3%. Probably more like a year or longer. Assuming they only hike by .25% at each meeting, that suggests a rate peaking near 3.5% by this time next year. It's probably more likely to be 4-4.5% though. I could be wrong and they stop hiking earlier, but that would further damage their already tarnished credibility.
... would be interesting to see that a class-action lawsuit doesn't come about on this after the regulator's study of a conflict of interest.Clara O'Hara, Wealth Management Reporter, The Globe and Mail, August 27, 2022
Several of Canada’s largest banks have blocked their financial advisers from offering clients certain high-interest cash funds during a period in which investors are flocking to safer investments amid shaky stock and bond markets, a restriction regulators may examine in a continuing review of industry sales practices.
Advisers at several major banks are not able to buy their clients high-interest-savings ETFs, also known as cash ETFs or HISA ETFs. These products mainly invest in pools of banks’ high-interest savings accounts and deposits. Instead, the banks’ investment arms are prompting their advisers to offer the banks’ own proprietary savings accounts directly to clients.
Royal Bank of Canada RY-T, Bank of Montreal BMO-T, Toronto-Dominion Bank TD-T and Bank of Nova Scotia BNS-T all block their advisers from buying the HISA ETFs, placing them on “restricted lists” usually reserved for risky, volatile investments.
It’s another stumbling block for independent fund companies in Canada that manage and sell the cash funds. Do-it-yourself investors who use discount brokerage trading platforms at RBC, BMO and TD are also blocked from purchasing HISA ETFs.
Canadian Imperial Bank of Commerce CM-T and National Bank of Canada NA-T provide access to cash ETFs at their discount brokerages and their investment-adviser brokerages, CIBC Wood Gundy and National Bank Financial. Scotia iTrade allows do-it-yourself investors to access cash ETFs but does not allow investment advisers at Scotia McLeod to purchase cash ETFs for clients.
Some of the banks who block sales of the cash ETFs told The Globe and Mail they believe they offer a satisfactory suite of cash products to their clients, making the HISA ETFs unnecessary.
However, Canadians who use independent discount brokerages or other sellers of cash ETFs flocked to the product as interest rates began to rise earlier this year. Investors injected more than $1.6-billion into those ETFs in the first half of the year. In Canada, there are currently six HISA ETFs with almost $9-billion in total assets under management as of July 30, according to data from National Bank Financial.
The draw for many investors is how quickly the yields on the products jump as interest rates rise. The yields of HISA ETFs averaged 1.45 per cent in May and have doubled to about 3 per cent. Traditional high-interest CDIC-insured savings accounts currently pay 2 per cent to 2.3 per cent.
Management expense ratios for the HISA ETFs range between 0.05 per cent and 0.39 per cent.
Julia Mackenzie, spokesperson for the Investment Industry Regulatory Organization of Canada, said that while the organization oversees discount brokerages and full-service investment dealers, it does not regulate the products dealer firms offer.
“Though there are product due diligence requirements, there is no restriction on what dealers can offer or choose not to offer to clients,” Ms. Mackenzie said in an e-mail to The Globe.
However, Ms. Mackenzie says a group of Canadian regulators is conducting a broader compliance sweep, looking to see if there are any potential conflicts of interest among investment dealers. She said regulators will – among other things – examine conflicts associated with proprietary products and related restrictions of firms’ product offerings.
The broad sweep is being jointly conducted by IIROC, the Mutual Fund Dealers Association and the Canadian Securities Administrators – an umbrella group representing provincial and territorial securities commissions – with the goal of examining how investment firms are implementing a set of new rules called client-focused reforms.
The sweep is independent of another review conducted earlier this year by the Ontario Securities Commission on the product offerings of Canada’s largest banks. Ontario Finance Minister Peter Bethlenfalvy launched that review after he said he had concerns about financial institutions halting sales or “unduly” restricting sales of third-party investment funds. The OSC submitted recommendations to him on Feb 28.
The OSC declined to comment on its recommendations, referring questions to the Finance Minister. Mr. Bethlenfalvy’s office has not responded to several e-mail requests sent by The Globe on whether the recommendations would be released to the public.
RBC Dominion Securities Inc., Royal Bank’s investment arm, is one of the country’s largest full-service securities brokerages, with 1,900 securities advisers. RBC spokesperson Kathy Bevan said in an e-mail that although RBC does not currently offer HISA ETFs to clients, the bank offers “a number of competitive products to meet their short-term cash investment objectives.”
“We periodically review and monitor our product offerings to ensure we are able to provide our clients with best-in-class solutions and customized strategies to meet their financial goals,” Ms. Bevan said.
Jeff Roman, a spokesperson for BMO, said the bank only offers CDIC-insured high-interest-savings accounts, while TD spokesperson Derek Kirk said HISA ETFs are not “generally available” to be sold by TD Wealth advisers at this time, but the bank reviews its product offerings on an “ongoing basis.”
Scotiabank declined to comment on its adviser channel.
By contrast, Martin Gagnon, National Bank’s head of wealth management and the co-chief executive of National Bank Financial, said in an e-mail the bank’s advisers have the “freedom to select the best investment product based on their clients’ personal and financial objectives, their personal situation, etc.”
“If a third party HISA ETF is the best solution for a client, they are available,” he said.
I always wondered how the big brokerages get away with this, blocking access to a product that competes with their bank.... would be interesting to see that a class-action lawsuit doesn't come about on this after the regulator's study of a conflict of interest.