Integrated Mortgage Planners
✕
  • Contact
  • About
  • Media
  • Privacy Policy
  • Blog
  • Rates
  • Mortgage Central
    First Time Home Buyer
    First-time Home Buyers
    Borrower Specific Advice
    Borrower Specific Advice
    Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
    Mortgage Calculators
    Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
    Mortgage Rate Updates
    Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
    Borrower Beware
    Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
    Product Commentary
  • About
  • Apply
Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
(416) 304 0100
Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
Call us
Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
✕
  • Blog
  • Rates
  • Mortgage Central
  • About
  • Apply
  • Blog
  • Rates
  • Mortgage Central
    First Time Home Buyer
    First-time Home Buyers
    Borrower Specific Advice
    Borrower Specific Advice
    Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
    Mortgage Calculators
    Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
    Mortgage Rate Updates
    Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
    Borrower Beware
    Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
    Product Commentary
  • About
  • Apply
Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
(416) 304 0100
Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course

Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course

  • Home
  • Blog
  • Monday Morning Mortgage Rate Updates
  • Why The Crisis in Greece Is Just An Appetizer and Italy Is the Main Course
The Americanization of Canadian Credit
November 9, 2011
Three More Developments Last Week Will That Help Keep Canadian Mortgage Rates Low
November 21, 2011
Last updated on November 8, 2017
Categories
  • Monday Morning Mortgage Rate Updates
Tags

toronto mortgage ratesConcerns over Greek default were set aside last week as Italy took centre stage in the escalating euro- zone crisis.

Italy has $3 trillion of sovereign debt outstanding, which represents the third largest sovereign debt pool in the world and totals more than all Spanish, Irish, Portuguese and Greek debt combined. This large pool of debt must constantly be renewed and refinanced (like when your mortgage comes up for renewal but on a much larger scale!) and therein lies the latest and scariest twist yet in the euro-zone crisis.

Italy has to roll over $300 billion of its sovereign debt during the next year alone, and each time it tries to refinance another tranche, investors demand higher yields. These higher yields increase Italy’s borrowing costs, causing the gap between the country’s revenue and spending to grow wider still. The more Italy has to borrow, the more nervous investors get and the higher its bond yields go. It is a vicious cycle that is now dangerously close to spinning out of control.

Last week, ten-year Italian bond yields soared past 7%, which was the point at which Greece, Ireland and Portugal all had to seek a bailout to avoid sovereign default. As such, the threat of an Italian sovereign default is now very real, but unlike the other struggling countries, Italy is simply too big to bail out.

At this point the European Central Bank (ECB) is really all that stands between Italy and default. The ECB has been aggressively buying Italian bonds for some time, but when the country’s ten-year bond yields spiked last week, the ECB redoubled its efforts and drove the Italian ten-year bond yield back down to 6.45% by the close of business on Friday. While many would argue that any long-term average yield above 6% will be unmanageable for a stagnant Italian economy teetering on the brink of recession, the ECB’s unprecedented support has bought the world some time. For now.

The five-year Government of Canada (GoC) bond yield finished two basis points lower for the week. That said, we’ve seen this bond yield drop more than 30 basis points since lenders last moved their fixed rates, so we really should have seen a corresponding drop in five-year fixed-rate mortgages by now. (Lenders argue that the recent drop in the GoC five-year bond yield has corresponded with a rising “risk premium” in their funding costs, but the TED spread hasn’t moved much at all in the last five weeks and default rates are miniscule, so I’m not sure I agree with that justification.)

Five-year variable-rate mortgage discounts are starting to increase again, with prime minus .20% now widely available. As always, borrowers who look a little harder can do better.

The bottom line: The threat of an Italian sovereign-debt default presents a massive systemic risk to the global banking sector, and even if Italy avoids default in the short-term, it will be with a band aid (more debt), instead of a cure (deleveraging). In the short-run, sovereign default fears will continue to spur demand for GoC bonds and that should keep yields, and Canadian mortgage rates, at rock bottom levels for a while yet.

I am an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact me or apply for a Mortgage Check-up to obtain the best available rates and terms.
Share
72

Comments are closed.

Dave the Mortgage Broker
Integrated Mortgage Planners
David Larock - Mortgage Broker
Integrated Mortgage Planners Inc.
DBA: TMG Integrated Mortgage Planners Inc.
FSRA License #12867
2 St. Clair Avenue West, 18th Floor
Toronto, ON M4V 1L5

(416) 304 0100  - Phone
(888) 406 8939 - Toll Free

Contact us
Useful links
  • Contact
  • About
  • Media
  • Privacy Policy

© 2023 Integrated Mortgage Planners Inc.