What It Means To You
Why did the Bank of Canada (BOC) maintain their Overnight Rate Target at 1 ¾ per cent, and what does this this mean for you?
The why is easy: The US-China trade conflict combined with policy responses by some central banks, have pushed bond yields to historic lows and inverted yield curves in several economies, including Canada.
The yield spread simply means subtracting short-term interest rates from long-term interest rates. The yield curve is a plot of interest rates for government bonds of all maturities in a given country. Bond yields represent, in percentage terms, the price investors are willing to pay for those securities. When demand for bond purchases rises, prices rise, and thus yields (interest rates) fall. When long-term bond yields are lower than short-term yields, the spread is negative, and the yield curve is inverted.
The key meaning of an inverted yield curve is inflation is going to be much lower in 2029 than it is in 2019. When inflation expectations for future periods are lower than can mean a slowing, and perhaps contracting, global economy.
Central banks, including the BOC therefor keep the interest rate low in order to make borrowing cheaper and stimulate economic growth.
What it means for you: It should help real estate investors and Realtor’s® clients with more affordable monthly mortgage payments, once past the stress test