There are three Bank of Canada announcements concerning interest rates for the rest of the year: September 6, October 25 and December 6.
Right now 3-month Banker’s Acceptance rates are 1.2%.
The BAX futures are signalling that there is a better than 50/50 chance that rates will increase 0.25% in the September 6 cycle, and that there is a slight chance of two 0.25% rate increases by the end of the year:
| Month | Bid price | Ask price | Settl. price | Net change | Open int. | Vol. |
|---|---|---|---|---|---|---|
| Open interest: 942,178 | Volume: 86,058 | |||||
| August 2017 | 0 | 0 | 98.765 | 0 | 0 | 0 |
| September 2017 | 98.655 | 98.660 | 98.645 | 0.010 | 137,868 | 7,160 |
| October 2017 | 0 | 0 | 98.615 | 0 | 0 | 0 |
| December 2017 | 98.500 | 98.505 | 98.490 | 0.010 | 224,303 | 15,544 |
| March 2018 | 98.395 | 98.400 | 98.375 | 0.020 | 163,606 | 19,552 |
| June 2018 | 98.330 | 98.335 | 98.305 | 0.025 | 112,558 | 15,558 |
| September 2018 | 98.270 | 98.280 | 98.250 | 0.030 | 120,395 | 10,055 |
| December 2018 | 98.210 | 98.220 | 98.200 | 0.020 | 102,302 | 9,439 |
| March 2019 | 98.160 | 98.170 | 98.140 | 0.020 | 45,030 | 5,208 |
| June 2019 | 98.090 | 98.100 | 98.080 | 0.020 | 17,655 | 1,763 |
| September 2019 | 98.010 | 98.030 | 98.010 | 0.010 | 10,774 | 827 |
| December 2019 | 97.940 | 97.960 | 97.940 | 0.010 | 5,193 | 646 |
| March 2020 | 97.860 | 97.870 | 97.870 | 0 | 2,199 | 198 |
| June 2020 | 97.780 | 97.800 | 97.800 | -0.010 | 295 | 108 |
Guessing the impact of these short-term interest rate changes I will leave as an exercise to the reader for now. The one salient fact, however, is that when short-term financing rates increase, the incentive to leveraging decreases and so marginal investments will be less viable. Parking cash in a rising-rate environment is best done with cash rather than using any debt instruments with duration (I wish I had stuck to this – my cash parked in VSB.TO has decidedly unperformed zero-yield cash!).
Just wonder why not use PSA on TSX or highrate saving accounts that has mutual fund code? Using VSB to try to milk that extra 100+ basis point?
I got tired of the low .75% (now .85) at TD Web….so have played the Tang/EQ 3 month shift game for the last 2 years. I have avg about 2.8% doing this and can have the money in my trading account within 48 hrs.
@Will / @Marc: Congrats. I always think these short-term HISA promotions were stupid because they encourage customers to take their capital out once the promotional rate is over. I guess they continue to do it because people are too lazy to find other solutions to short-term cash but if EQ and Tangerine are alternating, more power to you!
@Will: Yeah, tried to get too fancy. VSB does have 1.5% YTM after expenses so it isn’t a total loss over time but right this very second the HISA option would have worked a lot better. This doesn’t count for the registered accounts, however. I guess dumping that into EQB 100 (1.5%) would have worked better.
Me, I like the prime reset preferred issued by Bam or Bce to park cash. As the rate rises their yield rises and they are still out of favour to a certain degree leading to a good chance of capital gains. I did very well with them in the last year…