DATE

Bank of Canada to Begin Purchasing 10 Year Mortgage Bonds

Steve Saretsky -

The Bank of Canada has announced it will begin purchasing 10 year fixed rate Canada mortgage bonds. Before anyone gets confused, this is not QE (quantitative easing) but rather, it is balance sheet management, where the central bank routinely purchases assets to offset its liabilities, which consist mainly of bank notes in circulation and government deposits.

However, the timing of the announcement suggests a few things. Stephen Poloz and the Bank of Canada have stressed a desire to curb interest rate renewal risks in the housing market. By purchasing 10 year bonds it seems they are attempting to influence the cost of 10 year mortgage debt and should also provide the Bank of Canada more control to mitigate the risks of rising borrowing costs in the event of liquidity issues.

In a recent speech Poloz noted, longer mortgage terms would “mitigate the normal risks in the system both for lenders and for borrowers.” Adding, “More choice for borrowers and more ways for lenders to diversify risks are desirable. To be clear, the system is not broken—it has served Canadians and financial institutions well. But we should not stop looking for improvements.”

While this is all very early stages, it seems there is more discussion taking place around longer duration mortgage terms in Canada. As of today, the Bank of Canada’s own data shows that currently just 2% of mortgages have terms greater than five years. Nearly half were five-year, fixed-rate mortgages which can be anywhere from 0.4% to a full percentage-point cheaper than a comparable ten-year mortgage.

 

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022