Avoid Getting Crushed by Falling Rates

The last few weeks have been a time of severe market volatility and we understand that this is a concern to our clients. Most importantly for our cash management clients, the Bank of Canada announced a 50 basis point cut to its overnight rate target, following the Federal Reserve's emergency meeting to lower its target range. 

Watch our market update video below which details how institutional investors should adjust their strategy for yield preservation.

Rate Cut Probabilities Extremely High

We do not believe that this will be the last rate cut from the Bank of Canada or the Federal Reserve, as the probability of further easing is extremely high. If you continue to hold funds in prime-linked deposits, we anticipate that those rates will fall again in the near future.  

Below are the probabilities of a rate cut at the Bank of Canada's next meetings. These probabilities are based on the market for Overnight Index Swaps, and a value over 100% means that the market is pricing in more than one 25 basis point cut by that meeting.

Source: Bloomberg, March 10th

The market is thus pricing in more than two rate cuts in the next few months. The yields on low-risk bonds has plummeted in the last week, reaching all-time lows, but there are still GIC deposit options that offer a competitive and fixed rate of return. We believe this is a good opportunity to lock in fixed term GIC rates before the Bank of Canada's cuts rates again.

Our message has remained the same: position your institution's short-term investments in a laddered deposit strategy. 

As always, our team is here to keep you informed. Contact us for a strategy for your investments and a complimentary portfolio review. 

Disclaimer: Canaccord Genuity Corp. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and Canadian Investor Protection Fund (CIPF). The comments and opinions expressed in this commentary are solely the work of the Cash Management Group and Andrew Johns.