The stock market giveth, and taketh away. Same for the bond market, as we found out in 2021-22.
Guaranteed investment certificates just give. That’s why money poured into GICs in 2023. Returns were as high as 5 per cent to 6 per cent, with virtually zero risk of losing money if you stayed within deposit insurance limits.
Yes, GIC interest income is taxed like regular income in non-registered accounts, unlike dividends and capital gains. Yes, stocks were on track to do better in 2023. But if you factor risk into the analysis, GICs shone in a very stressful year for money. That’s why I picked them as the investment product of 2023.
There’s virtually no chance of a repeat in 2024, though. We’ve had a great run with GICs, but they’re about to become a fair bit less attractive.
Rates on GICs partially reflect how willing the issuing bank or financial company is to compete for investor money. But the bigger factor is what’s happening in the bond market. While there’s no precise or immediate correlation, GIC interest rates follow the trends in bond yields.
Since the beginning of October, the bottom has fallen out of bond yields. The five-year Government of Canada bond, a trendsetter for five-year GICs, fell to around 3.2 per cent in late December from 4.4 per cent on Oct. 3. In the bond world, that’s a staggeringly big change in such a short span of time.
GIC rates have reflected the decline in bond yields only minimally, though. Expect more of a pullback for GICs in early 2024, unless bond yields bounce higher again. Five-per-cent returns for five years could soon be gone for good.
Shorter-term GICs offer better yields, an oddity that highlights the view in financial markets that inflation and high interest rates are a near-term issue and will fade over the longer term. Expect one- and two-year GIC yields to decline as the Bank of Canada gets comfortable enough with the inflation outlook to begin lowering its overnight rate. This could happen as soon as the first half of 2024.
To sum up, the current opportunity to lock in money with rates of 5 per cent to 6 per cent is limited. If you’re looking for better rates than we have today, snap out of it. Unless we see a disastrous resurgence of inflation, GIC rates have seen their peak.
Three additional thoughts on GICs going forward:
Don’t hesitate to try and squeeze some extra yield from GICs sold by a bank where you do substantial business. Readers report some success by asking for a bump up in GIC rates.
Do not let a bank sell you an index-linked GIC, with returns tied to stock indexes or sectors; market-linked GICs are lucrative for banks, less so for clients.
Try a GIC broker if you have a big amount to invest and want help staying within deposit insurance limits and finding the best rates.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
TORONTO — Canada’s investment product regulator says it imposed more than $14 million in fines and other financial enforcements in its last fiscal year.
The Canadian Investment Regulatory Organization (CIRO) says the total also includes imposed costs and the forced return of ill-gotten profits.
The regulator says it also ordered suspensions and permanent prohibitions in a significant proportion of proceedings against individuals.
Enforcement efforts included a $2 million fine against Fortrade Canada for recommending a high-risk product to unsophisticated retail clients, and a $1.7 million fine and permanent ban on securities-related business against Paul Walker for a range of misconduct including soliciting more than $1.5 million in investments for an outside business activity.
CIRO was created at the start of 2023 through a combination of the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada.
The new self-regulatory organization says it is focused on harmonizing its regulatory approach to create more consistency and timeliness with enforcement action.
This report by The Canadian Press was first published July 16, 2024.
