Canadian fixed mortgage rates continued to rise last week.
Investors, tired of the paltry returns in our low-interest-rate environment, have been selling off safe-haven assets, like U.S. Treasuries and Government of Canada (GoC) bonds, and shifting into riskier investments, like equities. The selling of these bonds causes their prices to fall and their yields, which our fixed mortgage rates are priced on, to rise.
Financial markets are ruled by either fear or greed. While greed has once again become the dominant sentiment, I believe this recent trend is based on misplaced optimism.
Last week’s market-moving news centred around the announcement of phase one of a U.S./China trade deal, but a closer look at the details leads me to conclude that any associated boost will likely be short lived.
For starters, U.S. President Trump said that this “great” new trade deal will be signed next month, but the Chinese media didn’t show nearly as much enthusiasm in their reporting and left out any reference to an imminent signing date. (That didn’t temper the enthusiastic reaction of financial markets, which have a well-earned reputation for overreacting to U.S/China trade-deal announcements.)
At a high level, China has tentatively agreed to buy $40 to $50 billion more of U.S. farm products annually and has granted some small concessions around intellectual property, financial services and its currency. In return, the U.S. has agreed to postpone an additional round of tariffs that were set to kick in on October 15.