Making Sense out of Treasuries

Maybe the recently detected gravitational waves are not only rippling across the fabric of the space-time continuum, but also distorting the US bond market. If it’s not that, how can we be setting new record lows in 10-year Treasury yields with the unemployment rate at a lean 4.9%, and the Fed having at least started a rate hike cycle?

FIN.9-Advanced-Treasury-Management

There are four possibilities that don’t require an appeal to black holes in investors’ minds. First, it could be that real rates aren’t really that low, because investors have concluded that US inflation will be extremely low for a decade. Breakeven inflation rates in the TIPS market have indeed fallen, although it seems hard to reconcile a new and much lower view on inflation for a full decade with the long-awaited uptick we’ve just seen in wage rates.

Alternatively, the market may be drawing an analogy to Japan and Europe, judging that the US can grow, but only if nominal and real rates stay extremely low for a long time. But Europe has a much larger output gap and a persistent political leaning to tighter fiscal policy, requiring a monetary offset. Japan also recently tightened fiscal policy in the face of a 200% debt/GDP ratio. It also has a declining working age population and barely positive potential growth, and therefore gets little capital spending even at low rates, given the lack of any need to expand capacity for domestic demand. Neither of these Eurozone or Japan stories fit the US that well.

A third alternative is that there’s a growing minority of investors who feel the US is on the precipice of recession, so that even if low rates aren’t forever, we’re going to need negative policy rates soon to address a cyclical downturn. A soft Q4 did indeed cast some doubts, as did the equities correction. Recent data on retail sales, employment, hours worked, confidence and jobless claims should have allayed some of those concerns, but didn’t. Yellen noted downside risks from abroad, and these are prevalent enough that we no longer see the Fed hiking until mid-year. But she didn’t sound ready to think about an ease. Yellen only discussed negative rates because she was asked about them, and sounded unenthusiastic.

A final theory is that the market sees the US as in decent shape, but is rushing to Treasuries in a flight to safety bid from stocks and corporates. One could be worried enough about stocks, EM dollar-denominated debt, energy sector debt in dollars, and the lack of liquidity in other debt instruments to not only push yields higher on those spread products, but pressure Treasuries lower. Still, these investors could roll short term bills instead of taking on the duration risk of a 10-year bond if they felt that Fed hiking was still in the cards over the next few years.

So, with nothing more solid to go on, maybe we do have to invoke gravitational waves after all. The merger of the colliding black holes responsible for the wave lasted less than a third of a second. If, as we expect, the US economy holds up reasonably well in 2016, credit troubles are concentrated in a few sectors like energy, core inflation inches higher, and the Fed resumes tightening before year end, new records for Treasury yields won’t last that long either.

 

Weekly Market Insight – Economic Update

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Negative interest rates are a bad idea. Yet, more and more central banks are going this route. The ECB is already operating in negative territory, Japan just entered the club and even the Bank of Canada is talking about it as a last bullet option. Negative interest rates are supposed to work through two main channels: the FX market and credit. Recent experience suggests that negative interest rates have very
little impact on FX rates, and the reality is that negative rates for FX rate is about a race to the bottom of competitive devaluation—a very risky trajectory given the experience of the 1920s and 30s. As for credit generation, the case for negative interest rates is even weaker.

The experience of the past year or two, in which lower interest rates were unable to generate a notable increase in demand for credit, suggests that households are much less responsive to rate cuts given that they are already so low. But even more significant is the supply side of the negative rates equation. At the end of the day, what influences the decision by banks to lend is not the absolute level of interest rates but net interest
margin, that is, the shape of the yield curve. In this context, negative rates are basically a cost for lenders. And to the extent that this cost will be passed to borrowers, ironically negative rates can end up leading to higher borrowing costs. In fact, there is already some evidence that this has happened in Denmark.

In Canada, we keep waiting for corporate Canada to start investing and help the Bank of Canada achieve the desired rebalancing in economic activity—away from energy and toward manufacturing. The perception is that cash-rich CEOs are sitting on their hands and refuse to spend until the fog clears. A few years back Governor Mark Carney called it “dead money”. The reality is very different. Non-energy investment in Canada is highly influenced by profitability. In fact, the current relationship between investment and profit is not abnormal. What’s preventing non-energy investment from getting out of the
gate is not fear but lack of ability.

Now, why aren’t we seeing stronger profitability given the low dollar? Part of the answer has to do with the current struggles of US manufacturers, who are not growing their orders from Canadian suppliers that are integrated into their production chains. Canada’s higher weighting towards intermediate goods rather than final consumer goods dulls the impact of a weaker exchange rate on profitability. But what about that dead money? Here again reality is different than perception. Yes, corporate cash positions are elevated in absolute terms, but not relative to assets. The reason here is the fact that the level of assets such as inventories and receivables have been going down. The main factor behind that substitution is that following the financial crisis, lenders require corporations to have a larger cash position in order to get better access to the credit market. This cash will not be available for future investment. Corporate profitability will have to improve before we see a surge in non-energy investment.

 

By Benjamin Tal

COLD HARD FACTS: The hidden trap of mortgage penalties at the big banks.

It’s easy to get caught in the posted mortgage rate trap at the big banks.

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No, you won’t have to pay the posted rate on your next mortgage. Pretty much nobody does that any more, according to mortgage broker Robert McLister. The real danger is that posted rates will be used to calculate the penalty if you ever have to break your mortgage, probably costing you thousands of extra dollars.
A mortgage penalty compensates a lender for the interest payments it loses out on when you break a mortgage contract. “That’s the intention,” said Mr. McLister, who is also editor of CanadianMortgageTrends.com. “But in many cases, it overcompensates. It’s punitive in many cases.”
As we head into another round of quarterly bank earnings reports, it’s worth thinking for a moment about how those wonderful profits and dividends for investors are generated. One way is by using posted instead of lower discounted rates when calculating how much to penalize a client breaking a mortgage.
With houses as expensive as they are today, it’s crucial to get the lowest mortgage rate you can. Keep the same level of focus when inquiring about mortgage penalties. Although it’s hard to imagine the need to break a mortgage on a house you’re just buying or living in happily, it can happen. Mr. McLister said roughly 70 per cent of people adjust their five-year fixed rate mortgage before maturity, although many do it to refinance or move to a bigger house rather than to break the mortgage outright.
Mortgage penalties are straightforward if you have a variable-rate mortgage – expect to pay the equivalent of three months’ interest in most cases. With a fixed-rate mortgage, the penalty is set at the higher of three months’ interest or a calculation called the interest rate differential, or IRD. The must-ask question when negotiating a fixed-rate mortgage: Do you use discounted or posted rates to calculate these penalties?
This is important because using posted rates can result in a much higher penalty. For some real world numbers, let’s use the mortgage prepayment calculators all lenders now provide on their websites. They show penalties for paying all or a portion of your remaining mortgage balance (to find them, Google your lender’s name and “mortgage prepayment calculator”).
Let’s use an example of someone who, three years ago, set up a $250,000 five-year mortgage and has a balance owning of $200,000. Assuming an original mortgage rate of 3.64 per cent with a discount of 1.5 percentage points, the mortgage prepayment calculators at several big banks showed penalties ranging from $5,000 to $7,600 or so.
A check with some alternative lenders found penalties ranging from $1,800 to $2,800. These are very rough comparisons because lenders differ a fair bit in what information they ask you to supply. But you get the picture – the big banks apply penalties with a sledgehammer.
As well as producing revenue for lenders, inflated mortgage penalties also help trap clients who might otherwise move their business to another lender. Imagine you want to refinance your mortgage or buy a bigger home and your bank won’t come across with a competitive rate. You say you’ll change banks, only to find out how prohibitively expensive it is to break your mortgage.
Mr. McLister said some banks have a stated policy of offering clients only a small discount off the posted rate if they want to add on to their mortgage to buy a more expensive house. You may be able to negotiate something better than a trivial discount, but your bank knows your leverage is limited because of the penalty you face if you go.
Alternative lenders often have better rates than the big banks, and they typically have cheaper penalty fees. Why do so many people use their banks for mortgages, then?
Mr. McLister speculated that some borrowers like the convenience of having their mortgage where they bank, and of being able to go into a branch to talk about their mortgage. If you prefer transacting online, some alternative lenders don’t have great websites.
One thing you do not need to worry about if you borrow from an alternative financial institution is that your lender will go bankrupt. “It’s funny that people look at mortgages and think, I need a safe lender.” Mr. McLister said. “If a lender goes out of business, pretty much nothing is going to change except for the name of your new lender.”

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Loonie drops to post-recession low after Bank of Canada cuts rates

The Bank of Canada has cut its overnight rate once again. Before getting too excited, don’t expect a big reduction in the prime rate. I doubt this move will impact on mortgage rates – at least not yet.

On the bright side, it does suggest that mortgage rates should remain low. I expect that the B of C will cut again within one year.

With that in mind, the best course of action in Canadian mortgages right now would be to choose a variable rate mortgage. Rates will likely drop again soon, and that means the lowest 5 Yr VRM in Canada, us at 2.10%, will drop even lower!

To learn more about how a 5 Year Variable Rate Mortgage could be right for you, please visit our website: http://www.mortgagestogo.ca/welcome

Financial Post

TORONTO — The Canadian dollar plunged Wednesday to a post-recession low after the Bank of Canada cut a key interest rate and lowered its forecast for the economy.

The loonie dropped more than a full U.S. cent to as low as 77.34 cents US, a level not seen since March 2009 when Canada was in the midst of a deep recession.

The dollar made up some lost ground later but was still down 0.92 of a U.S. cent at 77.57 cents US in morning trade.

The central bank lowered the benchmark rate on overnight loans between commercial banks to 0.5 per cent from 0.75 per cent, where it had been since a cut in January. Policymakers led by Governor Stephen Poloz said “the lower outlook for Canadian growth has increased the downside risks to inflation.” Crude oil, Canada’s biggest export, is almost 50 per cent cheaper than a year ago.

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Report – Consumers are Increasingly Moving from Banks to Brokers

A recent Canada Mortgage & Housing Corporation report showed that home buyers, especially first-time buyers, were committed to using mortgage brokers – rather than getting a home loan direct from mortgage lenders.

CBC News reports that, in Calgary, the activity certainly reflects that. One broker in the city told the broadcaster:

“We are definitely seeing more of the first-time home buyers”,

and highlights the ability of brokers to offer a more personalized service than the banks. The CMHC report showed an increased in using brokers, up from 32 per cent in 2012 to 42 per cent in 2015 and the CBC article says that young buyers are looking for personalized service, and don’t like having to wait for banks to get back to them; they want great rates, and they want them now!

So, are you in the market for a mortgage, but aren’t sure where to start? mortgagestogo.ca offers mortgage rates much lower than the banks. Whether you prefer a variable rate or a fixed rate, we will have the best rate available for your financial situation. mortgagestogo.ca will always offer expert advice, a selection of quality products, and interest rates that are much lower than the banks.

Whether you have great credit or bad credit, mortgagestogo.ca will always find the best solution for your circumstance. After all, we have built our brand on getting the job done and getting it done properly.

Contact us today and you will soon discover why many of the Canadians, switching to brokers from the banks, are choosing mortgagestogo.ca today. Here are the rates that have our clients coming back to us:

TERM

OUR RATES

BIG 5 BANK RATES

1 Year

2.69%

2.89% – 3.29%

3 Year

2.25%

3.39% – 3.65%

4 Year

2.54%

3.89% – 4.39%

5 Year

2.54%

4.49% – 4.79%

7 Year

3.39%

5.29% – 5.85%

10 Year

3.84%

5.79% – 6.10%

5 Yr VRM

2.10%

2.85%

With rates as low as this, the choice is clear:

When the banks say no, you can trust mortgagestogo.ca!

Visit our website to learn so much more: http://www.mortgagestogo.ca/welcome

Thought For Today – Being Safe

a Ship in a harbor is safe, but that’s not what ships were made to do.

Our entire lives, many of us are told to “play it safe” and to “choose the most practical & efficient way”. For example, some tend to choose one specific career, and limit themselves to traveling, only when it makes monetary sense to do so. Not only can thinking, and acting, this way be limiting on ones experiences, it can also be inherently destructive. Limiting yourself to one location, one career, and one life, will leave out all of the potential experiences that you could be having elsewhere.

Of course, for many, traveling at ones leisure is not always possible. However, it is crucial to always try & experience new things; order a different meal at a restaurant, finally try out that thing your friends have been bugging you about, or to start exercising again. These are only a few examples, but there are limitless opportunities for one to “break from your personal norm” and to experience what life has to offer.

So, our advice to you is to take a chance; you only get one life, and it is important to always strive to get the most out of it. Can’t afford to travel? Pick up a new hobby, like boating or hiking. Want to travel, but aren’t sure where to start? Go where your heart tells you to.

There are no rules; life is bursting with limitless opportunity. All one has to do is reach out and take it.

Thought For Today

“The vision that you glorify in your mind, the ideal that you enthrone in your heart, this you will build your life by, and this you will become.”
James Allen, As a Man Thinketh

If not you, than who? We are taught as children that others are great, and that we are not, so I ask the question, “Where do the “great” come from?”

I submit to you that the great arise from the most mundane of places; the great are those who refuse to remain as they are; the great are those who believe in their greatness. 

You Will Become What You Think About. So, Dream Big, surround yourself with positive people – and greatness will follow you, where ever you go. Never place limits on yourself on what others tell you that you can not achieve. You can Do It, if You Can Think It. 

Open your mind, listen to yourself, and you will soon discover what it takes for you to reach what you deserve. 

Report On Business: Jim Rogers Discusses Financial Repression

I’ve been following the great Jim Rogers for decades. He is a true visionary. When Jim Rogers speaks, I listen. As such, understanding your own finances is one very important thing; however, having sound investment knowledge will put you on the road to success.

At mortgagestogo.ca, we will always provide our followers with the best possible financial information. Our intention is to help you continue to make wise investment decisions. Read below about Jim Rogers, and learn about financial repression, government control, and what you should be thinking about.

– Paul Izzard, President

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“Financial Repression can mean many things but basically in a nutshell it is a lack of free market finance and human activity, where the government thinks it is smarter than we are!” 

 

Financial Repression

“Financial Repression can mean many things but basically in a nutshell it is a lack of free market finance and human activity, where the government thinks it is smarter than we are!”

“History has shown many times that we are smarter than governments, politicians and the bureaucrats – but they don’t like to give up power. When they make mistakes they blame it on us and try and make us pay for it! When they see a problem arise their first instinct is to try and suppress the public and markets. They try and do things they think will make things better, but of course it doesn’t, and only makes things worse!”

Government Controls & Regulations

“When problems arise they put on exchange controls which is a time honored tradition of politicians and bureaucrats to correct mistakes they have made. We will have exchange controls in the US again – no question. We already have exchange controls to some extent such as FATCA and other things to make it more and more difficult for Americans to do anything as far as finances are concerned. They will put on trade controls, tariffs quotas – they will come up with all sorts of things.”

“Politicians don’t know what they are doing. History proves many times that politicians make things worse instead of better because what they do since they don’t know anything themselves, they ask the bureaucrats how they can save themselves. The bureaucrats rush in and say “this is the way you save yourself”. “It isn’t your fault, it is the markets fault and those evil speculators and the people! They then come up with regulations and controls. They don’t know what they are doing!”

Regarding ZIRP, Operation Twist and three rounds of Quantitative Easing, Jim Rogers predicts:

“We are going to have to pay a horrible price for yet another mistake made by the bureaucrats”

What Should Investors be Thinking About?

  1. “The first thing investors should do is only do things they know a lot about! Don’t listen to me or anyone else who you don’t know what they are talking about. Do not so something that you yourself don’t understand perfectly.”

  2. “Everyone should know about having assets outside their own country. We all have fire insurance which we hope we will never use. Look upon international diversification as a kind of insurance. … diversify internationally.

  3. “If you don’t know about other asset classes then please, for goodness sake, learn about them because there are going to be many strange things happen in the next decade.

#BeTheChange

You must be the change you wish to see in the world. 

– GAndhi

What is the use of mortgaging a house, if you do not have a decent planet to put it on?

Without our planet, all of our money, possessions, and even our close relationships, simply would not exist. Our planet gives life to everything we know and love today. An employee knitted that sweater, designed that video game, and made you that coffee. As humans, we feel as though our actions and presence are the most important aspects of our world. 

This is not true. If we didn’t have a planet to live on that supports life, all of our efforts and decisions wouldn’t exist. We need to treasure Earth, and all living things on it – not just ourselves. The more our selfish behavior takes over, the more harm we cause to this beautiful world.

Luckily, there are millions of citizens on Earth who make conscious efforts everyday, in order to reduce their carbon footprint. So, in order to help preserve our planet, mortgagestogo.ca Inc will now be an Eco-Friendly organization. 

We encourage all of our fans to practice sustainable acts; it can be as simple as recycling paper, to as rewarding as doing a beach clean up.

Reduce, Reuse, Recycle

#BeTheChange

Thought for Today: Promise

– Promise Yourself –

To be so strong that nothing can disturb your peace of mind.

To talk health, happiness, and prosperity to every person you meet.

To make all your friends feel that there is something in them.

To look at the sunny side of everything and make your optimism come true.

To think only the best, to work only for the best, and to expect only the best.

To be just as enthusiastic about the success of others as you are about your own.

To forget the mistakes of the past and press on to the greater achievements of the future.

To wear a cheerful countenance at all times and give every living creature you meet a smile.

To give so much time to the improvement of yourself that you have no time to criticize others.

To be too large for worry, too noble for anger, too strong for fear, and too happy to permit the presence of trouble.

To think well of yourself and to proclaim this fact to the world, not in loud words but great deeds.

To live in faith that the whole world is on your side so long as you are true to the best that is in you.

Promise to always stay true to yourself and to never lose sight of who you are.