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Rates, Relief, and Reincarnation

The Bank of Canada held rates steady a few minutes ago, and many homeowners are probably experiencing feelings of relief, hoping for lower borrowing costs and a recovery in real estate values.

But James Carville, Bill Clinton’s chief strategist (the important kind of strategist, not the FX kind) famously said: “I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.”

If US bond yields keep rising, bank funding costs will remain high, and Canadian mortgage rates will remain elevated – despite the Bank of Canada’s pledge to remain on hold. This is important from a currency perspective, because to some extent, the loonie’s underperformance this year hasn’t been purely driven by rate differentials – it has also related to the rising likelihood of a consumption crunch among over-indebted households that are fundamentally exposed to shifts in the global rates landscape.

Relief is probably coming at some point, but homeowners and Canadian dollar bulls (let’s be real, they’re the same thing), can’t breathe easy just yet.

(And for the record, if there’s reincarnation, I hope to come back as a Labrador retriever)

Will the positive vibes last?
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Sentiment swings
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Dollar Juggernaut Slows, But Remains Powerful
Higher for (even) longer