24 June 2010

•    Credit default risk in Europe.
•    A weaker U.S. economic outlook
•    Weak inflation (1.8% compared to the BoC’s 2% target)
•    Record-low U.S. home sales
•    U.S. unemployment level
•    Weak Canadian retail sales
•    Investors’ appetite for risk-free assets
And despite all this, fixed income traders are still pricing in a 73% chance of a 25 bp (0.25%) rate hike on July 20. If it’s really so – the prime rate will rise, as well as the variable mortgage rates.
Fixed mortgage rates will still depend on the bond market. At this moment, the 5-year yield is just above major long-term support in the 2.40% area. Many economists expect it to change, but no one can say for sure.

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