CA10Y | Rate Cuts Ahead for Canada. Watch the Banks!
Back in November (2018) the yield on the 10 year Canadian treasury hit the upper boundary historical trendline and reversed sharply after briefly overshooting. Fundamentally, interest rates follow GDP figures so we can use these technicals to give us a bit of a prognoses for the financial and economic wellbeing of the country... and its not looking good.
Today the central bank confirmed the fears so expect Canadian rates to drop across the board (but I expect spreads to rise between safe paper and junk). It will be interesting to watch what happens to bank stocks over the next 12-18 months as the economy slows down. Will we see a credit crunch? How will this impact the Loonie versus the US dollar?
I am expecting trouble for Canadian banks as they are now dealing with a red hot housing market, the rout in commodities, and now, rising consumer delinquencies. Most importantly, bank capital (equity) will likely get squeezed, which will put tension on bank balance sheets and their eagerness to extend credit. A policy for negative interest rates is already primed and ready in the Bank of Canada's toolbox. But luckily Canada doesn't have "reserve requirements" for banks ;)
***This is not investment advice and is simply an educational analysis of the market and/or pair. By reading this post you acknowledge that you will use the information here at YOUR OWN RISK
Today the central bank confirmed the fears so expect Canadian rates to drop across the board (but I expect spreads to rise between safe paper and junk). It will be interesting to watch what happens to bank stocks over the next 12-18 months as the economy slows down. Will we see a credit crunch? How will this impact the Loonie versus the US dollar?
I am expecting trouble for Canadian banks as they are now dealing with a red hot housing market, the rout in commodities, and now, rising consumer delinquencies. Most importantly, bank capital (equity) will likely get squeezed, which will put tension on bank balance sheets and their eagerness to extend credit. A policy for negative interest rates is already primed and ready in the Bank of Canada's toolbox. But luckily Canada doesn't have "reserve requirements" for banks ;)
***This is not investment advice and is simply an educational analysis of the market and/or pair. By reading this post you acknowledge that you will use the information here at YOUR OWN RISK
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