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Rigden Financial 2024 Bond And Mortgage Outlook

Canadian Bond and Mortgage Rates are High

The Bank of Canada pushed bond and mortgage rates higher in 2022 and 2023 to dry up inflation caused by pandemic stimulus. Five-year fixed mortgage rates usually hover around 1.5% higher than the five-year government of Canada bond yield. The best ones are currently around 5.09%, but rates are forecast to decline 1-3% this year.

Short-term interest rates have been higher than long-term rates for many months. This unusual situation is called an "inverted yield curve" and frequently precedes a recession. The US is also facing an inverted yield curve, but it is much less inverted than Canada's, which gives them better odds of avoiding recession.

For Investors

Bond funds have performed poorly over the last ten years, but now may be a good time to increase bond fund exposure for two reasons:

  1. Higher potential gains - bond values go up when rates go down.

  2. Lower Risk - Rate hikes have a smaller impact on bonds starting from these levels.

Home Buyers and Mortgage Holders

Generally speaking, the best time to buy a house is when you are ready! There is a chance that home prices will rise quickly if mortgage rates fall sharply later this year. But variable-rate mortgages are very expensive at around 6.2%. If bond and mortgage rates drop sharply as predicted, variable-rate mortgages may redeem themselves. But interest rates are impossible to predict. Every mortgage borrower must choose between a variable rate in the low 6% range vs. a five-year fixed rate in the low 5% range.

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