WEALTH Matters — Winter 2010-2011

INTEREST RATE TRENDS

Here is our updated quarterly comparison of top GIC rates across various terms and at different time periods going back to the last rate peak almost 3 years ago.

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Interest rates had been rising across all term lengths in 2010 until European debt concerns and slower-than-expected US job growth provided room for rates to fall.

 

Note that in December longer term rates resumed their increasing trend as markets expected inflation to increases in the longer term. Short term rates have remained low as North American and European governments have kept their central bank rates low to continue to help the economy resume growth.

 

 

CONSUMER DEBT AND MORTGAGE RULE CHANGES

Interest Rate Trends

Investment Market Commentary

Case Study—LONG TERM CARE COSTS

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It is interesting to note that in Australia and New Zealand, which were less affected by the recession, short term rates are much higher than in North America and Europe – closer to their average levels over the past 5-10 years.

 

 

This should be a guide as to where our own rates are headed as economic growth resumes and inflation returns to more typical levels. However, It is widely expected that interest rates will increase only very slowly to avoid hindering growth in employment.

 

Forecasters in the UK are already noting that the Consumer Price Index inflation there is expected to come in at 4% for 2011. The government intervention in debt and currency markets after 2008 was widely expected to rekindle inflation, and these data support that expectation.

Some investors will choose shorter terms so they can reinvest when rates eventually do rise. However, as the table shows, the long term rates would have to rise by a large amount to make this strategy return the same as the 3.15% of a 5 Year term.

 

 

Most investors will be better off with a portfolio of longer terms with maturities spread out over time, so there is always some money maturing to be reinvested. Using this strategy also keeps money invested at reasonable rates through a period of low rates like the one we’ve just been through.

 

If you are looking for extra yield, there are bond portfolios that invest in bonds outside Canada to take advantage of the higher interest rates available in other countries. We’ll discuss this in more detail in a future article, but if you want to know more before then, just call us.

 

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