The Bank of Canada Is Now Buying Canada Mortgage Bonds What it Means for Canadian Real Estate

The Bank of Canada Is Now Buying Canada Mortgage Bonds What it Means for Canadian Real Estate.

The Bank of Canada Is Now Buying Canada Mortgage Bonds What it Means for Canadian Real Estate video duration 15 Minute(s) 22 Second(s), published by Steve Saretsky on 15 12 2018 - 23:37:14.

The Canada 2/5 bond inverted last week, the first time doing so since 2007
A flat or inverted yield curve is when short term rates exceed long-term rates
This is When it comes to prepaying a multifamily and commercial real estate loan, different types of mortgages come with varying types of prepayment penalties.

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The Canada 2/5 bond inverted last week, the first time doing so since 2007. A flat or inverted yield curve is when short term rates exceed long-term rates. This is often taken as a signal that investors are more optimistic about short-term prospects versus the long term, suggesting a lack of confidence in continued economic growth. This can also impact bank profitability, as banks pay short-term rates on deposits and take in long-term rates on loans. A flat or inverted yield curve, therefore, could lead to negative net interest margins.

In simpler terms, this can cause bank lending to further tighter, leaving borrowers high and dry when market liquidity is most needed.

Meanwhile, the Bank of Canada purchased Canada Housing
Trust bonds for the first time earlier this week, scooping up C$250 million of the federal agency’s C$5.5 billion five-year notes.

The Bank of Canada stated earlier they would only be buyers if investor appetite wasn't sufficient. So their recent purchase should raise some eyebrows. While the bank says this move is merely for normal management of their balance sheet the timing is rather interesting.

Expect to see the Bank of Canada ramp up purchasing in the event housing continues to move sideways. The purpose of this is to help with market liquidity and to stabilize borrowing costs. After the US housing crisis the US Federal Reserve purchased nearly $2T worth of Mortgage Backed Securities. The Bank of Canada won't have the same ability without destroying the currency.
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