So a bit more bank contagion this morning. The thing with contagion of any kind is that it will always be initially denied. To do otherwise is akin to yelling fire inside a very crowded building – people could get trampled.
I don’t know if there is more bank contagion to come or not. Banks that have been very weak for years like Credit Suisse and perhaps some others in Europe could certainly go down.
The Canadian banks are safe by all accounts. But I have always said and observed that banks are highly leveraged by nature. That risk has always been there. What offsets it is very strong risk management practices and strong regulation designed to keep risks under control.
I’m tempted to add to some positions on this dip. But my cash position is modest and so is my fixed income position. Therefore I decided not to buy anything this morning. I’m also determined not to do ANY panic selling whatsoever.
Looking at interest raters. I see that the 5 year Bank of Canada bond yield is down 22 basis points to 2.81% this morning. That rate peaked at about 3.70% in early January. This decline is indicative of fear and suggests that interest rates will be lower in the next year or so.
Looking at GIC rates, TD does not appear to show any updated lower rates. I suspect the GIC rates for 2 years and longer will come down this week if the Canada 5 year bond yield stays below 5%. We should also see lower fixed mortgage rates. If buying a GIC or looking for a mortgage this week it’s probably appropriate to negotiate harder than usual. Maybe move fast on locking in a 5 year GIC (if that is attractive to you) and move a little slower on mortgage negotiations.