As borrowers bemoan yet another massive interest-rate hike by the Bank of Canada, savers are getting a long overdue reward, writesDaleJacksonPI
In the wake of the fourth consecutive outsized increase by the central bank to combat inflation, yields on fixed income vehicles continue to rise.Just hours after Wednesday’s announcement, payouts on Canadian government two-year bonds ticked up slightly to 3.62 per cent and some one-year guaranteed investment certificate yields have reached 4.5 per cent.
Wednesday’s 75-basis-point increase brings the Bank of Canada’s benchmark lending rate to 3.25 per cent following a surprise full-point hike in July and half-percentage-point increase in April and June. Before then, it sat at an emergency pandemic low of 0.25 per cent. On a conference call with analysts last month, Royal Bank of Canada Chief Financial Officer Nadine Ahn said much of the moneyYields on longer-term fixed-income vehicles are normally higher than shorter-term maturities but experts caution savers not to jump at the highest rate in a rapidly rising interest rate environment.
For now, most fixed-income managers recommend laddering fixed income in short-term increments so they mature frequently enough to take advantage of yields as they rise. Like the name implies, payouts from GICs are guaranteed and essentially backed by the government. So are payouts from government bonds. If they default, we’re all in big trouble.
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