Investors now have safer options to compound their savings in bonds and other fixed-income products, analyst says
While Canadian borrowers continue to struggle with higher debt payments, those who are focused on saving are currently in a “sweet spot” due to moderating inflation rates, according to finance analyst Dale Jackson.
“The combination of higher yields and tame inflation gives retirement investors safer options to compound their savings in bonds and other fixed-income products,” Jackson wrote for BNN Bloomberg.
“Fixed income can now significantly add to overall portfolio growth instead of acting as a fruitless hedge against volatile equities. It can also add to the steady flow of income required to live in retirement and replace riskier income alternatives such as stock dividends and real estate investment trusts (REITs).”
And while the Bank of Canada is not yet outright dismissing the possibility of further rate hikes, Jackson said that last week’s policy rate decision might also indicate that the central bank’s tightening cycle is drawing to a close.
“The belief that rates will not go higher, or the lack of clarity, is reflected in the inverted yield curve,” Jackson said. “That means yields on longer-term Government of Canada bonds are lower than shorter maturities. At last check, one-year to three-year maturities are yielding 4.63%, five-year to 10-year maturities are yielding 3.74%, and yields on over-ten-year maturities are 3.56%.”
RBC Economics study shows Canadian spending slowing due to debt pressures. While spending is steady, early signs of weakness coincide with a slight unemployment rate increase.https://t.co/r5amlMW8vO#mortgagenws #mortgageindustry #householddebt #economy
— Canadian Mortgage Professional Magazine (@CMPmagazine) August 11, 2023
Household debt at a record high
Latest data from TransUnion showed that Canadian household debt has reached its peak so far during the second quarter, touching a record high of $2.34 trillion.
Of this, mortgage debt accounted for $1.73 trillion while non-mortgage debt totalled $604 billion.
“While some financial pressure has been offset through continued savings growth and strong employment, many Canadian consumers have accessed credit as a means to short-term liquidity,” said Matthew Fabian, director of financial services research and consulting at TransUnion Canada.
“The combined pressure of a high cost of living and elevated interest rates has created a payment shock, as the cost of debt has grown even heavier for some Canadian households.”
Find out which provinces have the highest cost of living in Canada here.
