Friday, 20 September 2013
As fall officially starts this weekend, volatility remains … The US Federal Reserve did not follow through on its planned tapering of bond purchases this month. Markets had priced in the $40 Billion / month reduction and interest rates had risen on the expectation of tapering. We are now seeing bond yields fall. Yesterday’s drop was 0.15%!
Rising rates have leveled for now. If bond yields continue to fall, we expect to see long term interest rates start to fall again! As mentioned in my previous posts, the factors of middle east tensions, higher energy prices, and uncertainty around US debt ceiling talks next month have given the US Fed pause in tapering this month. If all goes well, we may see tapering start at the end October. If not, it will likely occur in early 2014. Why the US did not taper - http://bit.ly/1aLvlLF
With the recent surge of buyers jumping in to capitalize on 5 year mortgages at less than 3%, Minister Flaherty has threatened more tightening if house prices and debt levels continue to rise. The obvious concern is one of stability. Canada remains the only jurisdiction where the housing market did not collapse as part of the Global Financial Crisis. With elevated debt levels, the government remains concerned about debt being taken at record low rates. They fear the burden of payment shock will be too much for consumers when rates normalize -http://bit.ly/156wLRU