9 Dec

Bond market bets on 50-bps Bank of Canada rate cut next week after rise in unemployment

Interest Rates

Posted by: Dean Kimoto

Observers say that if there’s one economic indicator likely to be concerning Bank of Canada officials, it’s the higher-than-expected rise in Canada’s unemployment rate last month.”

According to the latest figures from Statistics Canada, the unemployment rate rose to 6.8%, up 0.3 percentage points from October and 0.2 percentage points higher than expected.

 

Excluding the pandemic years of 2020 and 2021, this marks the highest unemployment rate Canada has seen in nearly eight years.

“If there is one indicator that will stress the Bank of Canada, this would be the one,” wrote BMO’s Chief Economist, Douglas Porter.

In response to the sharp rise in the unemployment rate, BMO has revised its Bank of Canada rate cut forecast to expect a 50-basis-point cut at the BoC’s December 11 meeting.

It’s a call shared by Oxford Economics. “With slack continuing to build in the labour market, GDP growing at a soft below-potential pace, and inflation at the 2% target, we expect the Bank of Canada will push ahead with another 50bp rate cut next week,” wrote economist Michael Davenport.

Bond markets are now pricing in 75% odds that the Bank of Canada will deliver a second consecutive “oversized” rate cut next week, bringing the policy rate down to 3.25%—its lowest level since September 2022.

This would also result in a prime rate of 5.45%, further lowering interest costs for variable-rate mortgage holders and those with personal or home equity lines of credit.

However, Porter cautioned that there’s still a case for a more moderate 25-basis-point cut.

“Domestic demand is clearly reviving, core inflation picked up last report, the Fed is proceeding more cautiously, and the currency is pushing 20-year lows,” he noted. “But the Bank seems biased to ease quickly, and the high jobless rate provides them with a ready invitation.”

 

Echoing this, Desjardins is maintaining its call for a 25-basis-point cut, arguing that the rise in the unemployment rate ‘masks the strength under the hood’ of the Canadian economy.

“With outsized hiring in the month, CPI inflation having advanced by 2% or less in the three months to October, and Q4 2024 real GDP growth tracking in line with the BoC’s expectations, we remain of the view that the Bank will cut by 25-basis points next week,” wrote Randall Bartlett, Senior Director of Canadian Economics.

A dive into the November employment report

Although the economy added 50,000 net new jobs in November—54.2k full-time workers and a loss of 3.6k part-time positions—the growth fell short of keeping pace with the labour force participation rate.

StatCan reported that 138,000 people were actively seeking work, reflecting the rapid pace of population growth in the month. This marked the fastest pace of job seekers recorded outside of the pandemic years.

Oxford Economics - unemployment rate
Source: Oxford Economics/Haver Analytics

“Today’s jobs report had a lot of moving parts,” noted James Orlando of TD Economics. “Yes, the unemployment rate rose significantly, but this was due to a massive increase in the labour force rather than outright job losses.

The largest gains in employment were seen in wholesale/retail trade (+39,000), construction (+18,000), professional services (+17,000), education (+15,000), and accommodation/food services (+15,000). Declines were concentrated in manufacturing (-29,000), transportation/warehousing (-19,000), and natural resources (-6,300).

Regionally, job gains were highest in Alberta (+24,000), Quebec (+22,000) and Manitoba (+6,600), while remaining largely unchanged in the other provinces.

This article was written for Canadian Mortgage Trends by:

Steve Huebl

Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.

6 Dec

Equifax launches Global Consumer Credit File to help newcomers build Canadian credit

Latest News

Posted by: Dean Kimoto

The new initiative aims to simplify the credit-building process for immigrants by recognizing financial histories from their home countries.

When Rebecca Oakes emigrated from the UK to Canada in 2017, she never anticipated that one of the first challenges she’d face would be securing a quality Canadian credit card.

 

Rebecca Oakes, Equifax
Rebecca Oakes,
Vice President of Data & Analytics, Equifax

The trouble stemmed from her lack of a recognized credit history in Canada, a challenge she had to tackle with a sense of irony, considering she was arriving as a vice president with Equifax Canada – one of the world’s leading credit reporting agencies.

”Despite working for Equifax, that didn’t help me get a credit file,” she recalls with a laugh.

Oakes, of course, had the tools to navigate the dilemma, but her situation is a common one faced by thousands of newcomers each year who arrive in Canada with limited credit histories.

For those seeking access to essential financial services, such as mortgages to help them lay down roots, the lack of a credit history can lead to added stress, unexpected expenses, and uncertainty.

Equifax’s Global Consumer Credit File: A game changer for newcomers

It’s a key reason why Equifax recently introduced its new Global Consumer Credit File. The initiative allows newcomers to Canada to extend their new Canadian credit files back to their countries of origin, creating a corroborated snapshot of their financial history prior to arrival.

“One of the big beliefs that Equifax stands for is that we strive to create economically healthy individuals and financially inclusive communities,” says Oakes, Vice President of Data & Analytics at the agency. “When you look at Canada in particular, there are many newcomers arriving in Canada each year, and often they are arriving with credit histories in their home countries that go unseen by Canadian financial institutions.”

Previously, many newcomers were forced to rebuild their credit histories from scratch before gaining full access to essential services like starting a business, securing student loans, or purchasing their first home in Canada. Under the current system, this process can take time, potentially delaying their plans and hindering their ability to fully contribute to Canada’s economy for years.

The product’s arrival is timely. According to Immigration, Refugees and Citizenship Canada, Canada is expected to welcome 500,000 new immigrants annually by 2025. While recent political unease and shifting policies may temper these figures, Canada is likely to remain one of the top destinations for migrants globally for the foreseeable future.

Addressing the needs of lenders and consumers alike

A significant portion of these newcomers are from India, which, as of 2021, was the country of origin for nearly 1 in 5 immigrants to Canada. India will be the first country where the Global Consumer Credit File is activated. Subsequent phases will expand to South America, with Brazil, Argentina, and Chile being the next targets. Overall, the program is set to roll out in 18 countries over the coming months, focusing on regions where Equifax already has a global presence.

While this is great news for newcomers planning their financial futures in Canada, the product also aims to address the needs of lenders.

“We are constantly talking to lenders and financial providers, it’s part of what we do day-to-day, just to understand what their needs are,” said Oakes. She added that lenders have long recognized the growing population of newcomers to Canada but have struggled with limited information to support them.

“They know that they don’t have much information to help immigrants when they first arrive to Canada, and therefore that has limited the products that are offered,” she noted.

How it works

Each global affiliate collaborating with Equifax Canada to consolidate information is a foreign Equifax entity. When individuals request the expanded report, these entities will be contacted to coordinate and share information with Equifax Canada.

The process is designed with thorough verification and security to ensure reliability. Additionally, Equifax has worked to understand and translate the complexities of its global partners’ credit systems and scoring criteria, ensuring their relevance in the Canadian market.

As a result, rather than simply sharing an individual’s foreign credit score, the program will generate a more accurate, calibrated Canadian score, offering more comprehensive information to potential lenders.

“We’re hoping this is going to be a win-win for everybody here, the lenders get more information, and the consumers can get better access to credit and finances,” adds Oakes.

This article was written for Canadian Mortgage Trends by:

Dylan Freeman-Grist

Dylan Freeman-Grist is a freelance journalist based in Toronto covering a variety of topics including finance, art, design and technology. You can follow him on X or Bluesky @freemangrist.

3 Dec

Why three big banks raised fixed mortgage rates despite falling bond yields

Latest News

Posted by: Dean Kimoto

Despite low bond yields, banks and other lenders are continuing to raise rates. We talked to several rate experts to understand why.
Bond yields have plunged over 30 basis points (0.30 percentage points) over the past two weeks.

As regular readers of Canadian Mortgage Trends know, bond yields typically influence fixed mortgage rate pricing. However, that’s not the case right now. Several lenders, including three of the Big 5 banks, have recently raised rates on some of their fixed-rate products.

CIBC, Royal Bank, and TD raised their 3-, 4-, and 5-year fixed rates by 15-35 bps last week, while RBC also increased its 5-year insured and uninsured variable rates by 10 bps.

And they weren’t alone. Many other lenders across the country have also raised fixed rates, with the biggest increases typically seen in the 3- to 5-year fixed terms. At the same time, others have been reducing select rates slightly.

Government of Canada 5-year bond yield – 2024
If yields are down, why are rates going up?
There is no single factor that drives rates; instead, they are influenced by a combination of market conditions, geopolitical events, domestic data, and the broader outlook for the future.

Mortgage broker and rate expert Dave Larock noted in his latest blog that the current rate changes are “counter-intuitive,” as lenders are “concluding a round of increases to their fixed mortgage rates in response to the previous bond-yield run-up.”

He’s referencing the jump in bond yields since early October, from a level of 2.75% up to a high of 3.31% on Nov. 21.

Larock added that the rate increases could be reversed in the coming week if bond yields remain at current levels or fall further. “That outcome is far from certain,” he cautions.

Rate expert Ryan Sims agrees that banks are being slow to adjust to the rise in yields in November. “Although the [increases] are done, they are still more elevated than they were,” he said. “If bond yields stay lower, or seem to find a happy resting spot, then I could see some rate wars starting up,” he continued.

He added that since more borrowers are opting for variable-rate mortgages, he suspects lenders “are going to have to sacrifice some spread on fixed rates to get people to bite.”

If too many clients opt for variable rates, “banks could quickly get offside on term matching,” Sims says.

Lenders face a risk if they have too many variable-rate mortgages because of potential mismatches between short-term liabilities and long-term assets. If interest rates rise, it can disrupt their profitability and lead to higher costs, especially if they haven’t properly balanced their portfolio.

That, Sims says, is why some lenders have been decreasing their variable rate discounts on prime even as prime keeps falling with each Bank of Canada rate cut.

Are Canada’s big banks pulling back on competition?
As we’ve reported previously, Canada’s Big 6 banks have been unusually competitive with their mortgage pricing this fall, a trend John Webster, former CEO of Scotia Mortgage Authority, called a “silly business” as the big banks strive to meet quarterly revenue targets.

At an appearance last month Webster said a “confluence of circumstances” had driven the big banks to be more competitive with their mortgage pricing. However, he also suggested that this was unsustainable and expected more rational pricing to return by the first quarter.

Could this be the start of more rational pricing from the big banks?

Ron Butler of Butler Mortgage said there’s an aspect of seasonality to the recent increases.

“It’s the time of year when all banks end mortgage marketing campaigns, so rates always go up in December,” he told Canadian Mortgage Trends.

However, he also echoed comments from Larock and Sims, noting that despite the recent drop in bond yields, 3- and 5-year yields remain higher than they were since October.

This article was written for Candian Mortgage Trends by:

Steve Huebl

Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.