CANADIAN YIELD CURVE Bank of Canada Bank Rate, 2yr, 10yr, 10yr less 2yr, 30yr, and 5yr Fixed Rate Mortgage and the TSX Real Estate Y/Y Momentum. See also the Real Long Rates and the Real 10yr Rate and the Interest Rate Spread
In November 2020 the 10yr less 2yr spread (purple dotted plot line) continued ticking up and is marginally above the flat line after being inverted for 8 consecutive months of negative prints (in 2019: JUL -6 bps, AUG -20 bps, SEP -19 bps, OCT -11 bps, NOV -13 bps, DEC -6 bps; in 2020: JAN -16 bps; FEB -11 bps).
In November 2006 it was 4 bps away from inversion and six months later in May, June and July 2007, the metric inverted and widened to negative 11 beeps and the TSX Real Estate Index tipped over into plungeville.
Back then the bank rate was 4.5% and about to briefly foray into 4.8% territory until the BoC freaked and began heading towards zirpiness. The bank rate was chopped to 1% in March 2020 and in April 2020 to 0.5% where it is today.
After 11.7 years of ZIRP and NIRP, it's about time for global governments to start replacing monetary policy with fiscal policy. Knob twiddling is indeed spawning new levels of housing unaffordability .
We know that yield inversion is not always a precursor to recession, but with Covid 19 accelerating, the TSX Real Estate Index Y/Y momentum (green plot) after a spike high in December 2019 has reversed sharply to the downside as cash buyers liquidate. My housing price momentum chart will be of interest now.
And for a very long term view of real rates, here is a quote from my May 28, 2020 post: "Suprasecular Decline"
"By the late 2020s, global short term real rates will have reached permanently negative territory. By the second half of this century, global long-term real rates will have followed." Paul Schmelzing, January 2020. Bank of England Staff working Paper No. 845
And from that same paper:
"...the long-term historical data suggests that, whatever the ultimate driver, or combination of drivers, the forces responsible (for real rates) have been indifferent to monetary or political regimes; they have kept exercising their pull on interest rate levels irrespective of the existence of central banks, (de jure) usury laws, or permanently higher public expenditures. They persisted in what amounted to early modern patrician plutocracies, as well as in modern democratic environments, in periods of low-level feudal Condottieri battles, and in those of professional, mechanized mass warfare."
I have added a few more charts on this subject on my November 29, 2020 Post "Castrated by the Zero Bound"