Bet the farm on a rate cut on December 4
Quick someone tell me if you can bet in Vegas on whether the Bank of Canada will cut rates in December? If you can then bet what you can because I think it is done now.
Bloomberg reported yesterday that government of Canada Bond Yields fell to yet another record low for the year due to investors continually clamoring forsafe investments amid the sub-prime meltdown and corresponding credit crunch.
Bankers’ Acceptance Futures for March 2008 fell an additional 6 basis points to 4.11 percent, the lowest since March. The reason this is significant is because since futures have been tracked the futures have settled at a three- month lending rate averaging 16 basis points above the central bank’s target which would suggest these smart people who make money on gambling right are telling us their is a rate cut coming.
The other good news is that if these yields continue to drop SOONER or LATER the banks will have to drop the five year mortgage rate. They are gluttonous in wanting these unprecedented spreads but they are more greedy for market share, someone will crack and drop the rates which will bring them all in line.
So long bet that fixed rates are dropping too.
Again, a sound strategy right now for anyone considering a new mortgage is to take a variable rate mortgage for the next six months or so, then consider locking in spring when fixed rates drop more.
Greg Williamson
