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Interest Rates Heading Up Now?? 04/2012

Two of Canada's big five banks have decided to raise the rate on their posted, five-year mortgages.

Royal Bank and TD Bank announced Monday they were hiking their five-year-closed rate by 0.20 to 5.44 per cent, and their special fixed four-year closed offer by 0.50 per cent to 3.49 per cent; their posted five-year variable rate — which rises or falls along with the banks' prime lending rate — will rise 10 basis points to prime plus 0.20 percentage points.

A basis point is one-hundredth (.01) of a percentage point.

The moves follow recent sustained increases in bond market interest rates, where banks raise their funds, and comes amid continuing concerns about the ability of some Canadians to manage their high personal debt loads.

The rate hikes come after a recent race to the bottom that recently saw Royal and others push their special offer fixed rate down to 2.99 per cent. The remaining banks could soon follow RBC's move in raising rates as the big five Canadian banks often move in lockstep.

In a BMO report Friday, its economists argued that with the U.S. recovering gathering steam, central bankers on both sides of the border are becoming more comfortable with the economy and less so with historically low interest rates that in Canada are fanning the flames of the hot housing market.

The increase follows  comments by Finance Minister Jim Flaherty Thursday, criticizing banks who have called on Ottawa to tighten lending and saying that’s their job.

Last week, the Canadian 10-year bond yield climbed close to a five-month high of over 2.24 per cent, a result of increased confidence by in the North American economy by investors prepared to move money out of the bond market and into stocks.

Today, Canada's 10-year bond was yielding 2.187 per cent, up from 2.171 per cent Friday. Bond yields move inversely to their prices.

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