WEALTH Matters — Fall 2013


Bond and GIC yields increased in the 3rd quarter of 2013, with larger increases seen at longer terms. The top 5-year GIC rate reached a high of 2.96% in late September, a level not seen since June 2011, but still well below the 4.65% seen just before the 2008 market crash. One-year GIC rates hit 2%, the highest since the Bank of Canada rate was last raised over 3 years ago to its current level of 1.25%. (Source: Cannex)

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Interest Rate Trends

Investment Market Commentary


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GIC rates reflect increases in government bond yields. We wrote in July about comments by Federal Reserve chair Ben Bernanke in May and June indicating the Fed would begin to gradually ‘taper off’ its monthly bond purchases. The 10-year bond yield rose over 1% on this announcement, forcing the Fed to reassure markets that such tapering would be very gradual and would not occur until the US economy showed strong enough employment growth to withstand the tapering. Yields might have settled back down were it not for the US congressional budget stalemate forcing a government shutdown and questions about the US government’s ability to meet interest and principal payments on its bonds. Following resolution of the impasse in mid October, 10-year US bond yields are back down to 2.5% - only marginally above where they were in September 2011.

Richmond Hill’s Top Choice for Financial Advisors in 2011, 2012 and 2013.

The US Budget debate is not over, merely deferred. It will resurface and may rock the bond market again by year-end, though not likely as sharply as this time. The recent market rate increase already factors in modest ‘tapering’ expectations despite slower than ideal economic growth and job creation. As long as the economic recovery doesn’t falter, we expect the Fed to taper off bond buying very gently in 2014 if at all, to avoid yields rising too much above current levels.

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