Mortgage Rates Capsizing Globally

Steve Saretsky -

Global bond yields continue to tumble as investors dogpile into bonds over fears of a looming recession. The worlds central bankers are rewarding such behaviour by slashing interest rates further into negative territory. Negative yielding debt is becoming the norm, surpassing $16T globally, a stunning example of a broken monetary system.

Right on cue, In the world’s largest covered-bond market, a Danish bank unveiled its 10-year mortgage-backed notes at a negative coupon. Jyske bank will offer 10 year mortgage bonds to investors at a fixed rate of minus 0.5%. In other words, investors are paying for the privilege to lose money, assuming they hold to maturity.

Jyske Bank says it would rather not be setting such records, given the global economic weakness that’s behind the historically low interest rates. “It’s a first not only for us but for all Danish mortgage institutions,” said Christian Bech-Ravn, head of ratings and investor relations at Jyske’s mortgage arm. “Overall, I don’t think it’s a good sign for the economy with these very low interest levels that we are seeing at the moment.”

Meanwhile in Australia, with threats of a bursting property bubble, the Aussie central bank has been swift to slash interest rates to record lows. Household debt has ballooned to 120% of GDP, the highest in the G-20. ABC News reports debt burdens have become so enormous that Foodbank South Australia has been approached by banks wanting to refer their clients to the charity, in the hope it will prevent people from defaulting on mortgage payments. The details are still being ironed out, however, Foodbank South Australia chief executive Greg Pattinson told ABC Radio,”We’ve never been approached by financial institutions in the past and the banks, to their credit, are doing the right thing in trying to find a way of keeping people in their houses.”

In the US, 30 year mortgage rates continue to fall. Households can now borrow at 3.55%, the lowest level since November 2016, and just 24bps higher than the record lows set back in 2012.

US 30 year mortgage rates
US mortgage rates

Canada of course has not been immune. The Canada 5 year bond which prices fixed rate mortgages continues to fall, down to just 1.174%, a plunge of nearly 140bps since late last year. The best five year fixed rate mortgages can now be had for under 2.7%. Lower for longer, as the Bank of Canada gets ready for their turn to slash rates this fall.

Bank of Canada rate cut odds
Bank of Canada rate cut odds via Capital Economics.

Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022