Big Funds Bet the ‘Anything But Bonds’ Trade Is Poised to End
Big US bond investors have been aggressively shifting money into long-dated notes, betting that the unloved asset class will be one of the winners from eventual interest rate cuts.
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Big US bond investors have been aggressively shifting money into long-dated notes, betting that the unloved asset class will be one of the winners from eventual interest rate cuts.
A measure of underlying US inflation cooled in April for the first time in six months, a small step in the right direction for Federal Reserve officials looking to start cutting interest rates this year.
Emerging-market currencies dipped Friday on dwindling optimism over Federal Reserve rate cuts, paring their fourth-straight week of gains.
The owner of a historic office building in Manhattan’s Financial District has filed bankruptcy to sell the property, which has been subject to foreclosure and suffered from a lack of tenants due to the Covid-19 pandemic.
Deutsche Bank AG has entered a capital-relief deal with the European Investment Bank that allows the German lender to grant discounts on more than €600 million ($652 million) of green mortgages in its home market.
Jun 9, 2016
By Greg Bonnell
Bank of Canada Governor Stephen Poloz says the threat of a housing price correction in the country's hottest markets is moving higher, and he’s warning prospective buyers not to count on endlessly rising home prices.
In perhaps his most frank assessment yet of Canada's runaway housing markets, the central banker said Thursday it’s unlikely the torrid pace of price increases in Vancouver and Toronto can be sustained.
With median home prices up 30 per cent in Vancouver and 15 per cent in Toronto, it's possible "prices may be supported by self-reinforcing expectations," the bank stated on Thursday in its semi-annual assessment of the risks to the financial system.
In other words, Canadian homebuyers’ fear of missing out amid a belief that home prices will only continue to soar may be driving those markets.
The Bank of Canada says foreign demand is also "playing a role" in Vancouver and Toronto, contributing to price increases that only drives household debt higher.
It's unlikely, the bank adds, that economic fundamentals will justify continued strong price increases.
“The rate of price increase appears to be outpacing anything that we can point to as fundamentals,” Poloz said Thursday at a media conference.
“If prices are going up because people expect prices to go up, then that of course is probably unsustainable.”
With that in mind, Poloz cautioned prospective homebuyers and lenders not to bank on continued prices increases in the two markets.
In fact, he said the risks of a price pullback in Vancouver and Toronto is “growing as we sit here.”
The bank pinpoints household debt and soaring home prices as two key vulnerabilities for Canada, and says those vulnerabilities have only increased this year.
The two vulnerabilities also feed off each other, as higher housing prices push more Canadians to take on bigger debt loads – and that's exactly what the bank is seeing.
Roughly 15 per cent of mortgages originated in 2015 had a loan-to-income ratio above 450 per cent. That's up from 12 per cent in 2014.
The bank also says more Canadians are amortizing mortgages over more than 25 years to lower their monthly payments, which only further delays paying down principal on debt.
In the event of a 25 per cent price correction, the bank estimates almost one-quarter of households with mortgages would be underwater, a situation in which your mortgage debt exceeds the value of your home.
However, the bank says the greatest risk to the economy – a recession that triggers widespread job losses and sees highly indebted Canadians fail to make debt payments – has lessened since December as the economy has improved.
And Poloz points out that just because a homeowner sees equity evaporate if prices move lower, their intention is likely to continue living in the home and paying their mortgage.
Apart from housing, the bank is highlighting concerns about liquidity in the bond market which could result in a market freeze. It adds more work is needed to better understand how the global bond market is adapting to liquidity concerns.