RBC's Covered Bonds vs Future Mortgage Rates

RBC’s Historic Covered Bonds

(from Canadian Mortgage Trends)
The rate you pay on your mortgage largely depends on what it costs your lender to raise capital. That’s why RBC’s latest covered bond issuance is noteworthy.

RBC issued $2.5 billion worth of covered bonds on September 12.

(Covered bonds are bonds backed by both the issuer’s credit and a pool of mortgages, in this case RBC’s mortgages. If the lender/issuer goes under, investors can still rely on the mortgages to get their money back. Canadian banks sell covered bonds to generate funds to lend out as mortgages.)

RBC’s issuance was the world’s first SEC-registered covered bond, meaning it could be bought by U.S. mom and pop investors for the first time. This huge pool of buyers makes the bonds easier to trade and less expensive to issue.

Why does any of this matter? It matters because these covered bonds will lower RBC's funding costs, and the savings can theoretically be passed on to borrowers.

Read more here!

BCREA: Global Uncertainty Will Keep Mortgage Rates Low

BCREA: Mortgage Rate Forecast

 

Global Uncertainty Will Keep Mortgage Rates Low

• Euro-crisis heats up again
  
• Canadian bond yields fall to record lows
  
• Mortgage rates hold steady for now 
  
  
  Global events have once again turned attention towards the interminable Euro-saga, which this time is seemingly closer to a conclusion. Unfortunately, whether that conclusion is orderly or catastrophically disorderly is still up in the air. What we do know is that the resulting uncertainty and risk-aversion has set bond yields on a steep descent back towards historic lows. For at least one day, Government of Canada five-year yields fell to just 1.06 per cent, a mere 6 basis points o of the prevailing Bank of Canada overnight rate. 
  
  Bond Market Roller Coaster
  

  Mortgage rates had been inching upward in the second quarter as an improved economic outlook and a more hawkish tone from the Bank of Canada pushed key bond yields sharply higher. However, global financial markets have since been hit with a tsunami of anxiety regarding the Euro-zone and the subsequent flight to safety has again sent Canadian bond yields tumbling to historic lows. Rapidly falling bond yields will likely open the door for banks to reduce posted mortgage rates, though tighter proposed lending standards, a rationing of portfolio insurance, and more intense regulatory scrutiny may place a floor under rates. We are forecasting that the benchmark five-year fixed mortgage rate will average 5.3 per cent for the remainder of the year.
  Shorter-term and variable rates, which are more immediately impacted by changes to the Bank of Canada policy, will likely remain fairly constant until the late fall or early winter when the Bank may begin to withdraw monetary stimulus with a 25 basis point rate hike. However, a rate hike viewed as almost certain a few weeks ago now seems much more unlikely in the current global financial climate. 
  
  Growth and Inflation Outlook
  The direct economic linkages between Canada and Europe are not of a large enough magnitude to drag down Canadian economic growth on their own. The ultimate impact of the Euro-crisis on the Canadian economy, therefore, depends crucially on the impact of the Euro-crisis on global financial markets. Thus far, actions taken in the winter of 2011 by the European Central Bank to calm inter-bank lending markets have been successful and there are no imminent signs of the type of liquidity crisis that shook global credit markets in 2008. 
  Read More Here (PDF)