dimanche 14 octobre 2018

Interest rates in Canada

The market went worried about the rise of interest rate  Actually, it went mad last week.

I don't know what's so worrying about a little increase of the rate. Because all things need to tend to their mean eventually, and since 2009, we're not in the mean at all.

Take a look at the chart below. The average interest rate in Canada over the last 28 years has been  around 6% (5,89% to be precise), and right now we're at 1,5%.

Almost every time in the history, when things didn't reach their mean for a long time, something bad happened. If the rate stays too low for too long, it's obvious there's gonna be negative impacts. When the access to money is too easy, there's abuse. And people, as well as enterprises, may act in a restless way.

OK, if the rate gets a little higher, our mortgage's gonna be more expensive, such as our car loan. And some stocks will be affected because of the debt they carry. But it's gonna be gradual and I'm pretty sure that the canadian governement knows that a lot of people in Vancouver are gonna have problems to pay their crazy mortgage if the rate goes up too quickly.  

So, with a rate under 5,89%, I don't see why people should worry. Everybody should know that we might get to 5,89% sooner or later.

Personnally, I live my life expecting often the average level of everything. Everybody should do that: it helps to prevent bad surprises.

5 commentaires:

  1. I agree with the premise of your post. There is a ‘herd’ affect in the media where they just harp on something that seems obvious but because it is obvious it can’t possibly be relevant…Here is Bruce Flatt’s take on interest rates from his last quarterly letter to the shareholders…

    ‘We are still in a period of historically low global interest rates, despite the narrative of a “rising interest rate environment and increasing inflation.” Owning real assets means that we are primarily focused on longer term rates which have remained low, particularly outside the U.S. Specifically, the 2, 10 and 30-year Japanese bonds are essentially zero. Similarly, the 2, 10 and 30-year German bonds are trading at -0.59%, 0.41% and 1.1%, respectively. The 10 year U.K. bond is at 1.33% and the 10-year Canadian bond is at 2.37%. In each of these economies, low interest rates are expected to persist for the foreseeable future. Not only do these rates keep borrowing costs low in these regions, but in today’s global capital markets with investors seeking yield, they also keep U.S. rates lower.

    Growth in the U.S. continues to be strong and interest rates are increasing faster than any other country, yet the 10-year bond continues to trade below 3%. We believe the outlook continues to reflect steady, modest rate rises and we expect the 10-year bond to level out in the range of 3.5% by the end of 2019. The slope of the yield curve continues to flatten, with the spread between 2 and 10-year U.S. treasuries at 30 basis points, implying very limited expectations of interest rate increases. With 50% of our assets in the U.S., we are well positioned to benefit in this environment.’

  2. Wish I held onto MTY Group. Sold it over a year ago when it trended sideways for too long. Not going to chase it but would love to own it again on a dip.

  3. That is interesting.I was thinking of selling because it is getting extended.

  4. I just wish I held it long term. I'll take 20% / year averaged over 5 years. I just got impatient. At the time I thought the rising minimum wage would have a larger impact on costs but it appears that they have managed.

  5. Its the bond market that drives interest rates in the market. The bank rates are irrelevant. And the moves can be violent.