Loonie & Bank Bonds Fall After Canadian Lenders Downgraded

A day after Moody’s Investors Service downgraded ALL of Canada’s big banks, the Canadian dollar and bank bonds have dropped.

As concerns over rising household debt and the housing market continue to grow, confidence in our financial system and economic stability is being lost.

As reported by Bloomberg, the yield on Royal Bank’s US dollar bond – which comes due in January 2026 – rose nine basis points to 3.92%. That was the largest increase in nearly two months. Meanwhile, the rate on a TD note due September 2031 rose five basis points.

With the outlook on all big Canadian banks now negative, an index of Canadian bank shares fell by nearly 1%.

Canadian Dollar Declines

As concern spreads, the Canadian dollar was down 0.3%, falling to 1.3694 per US dollar. This was actually an improvement from earlier, when it had fallen 0.8%.

Of all the G-10  currencies, the Canadian dollar is the worst performing currency so far in 2019, having fallen almost 2%.

Household debt concerns

Canadian household debt is a big concern for the stability of our economy, and it factored into Moody’s downgrade decision. High-indebtedness makes our economy more fragile, and could turn an economic correction into a full-blown crisis.

As Bloomberg points out, Canada’s household debt has grown far more quickly since the beginning of the 2008 Financial Crisis than in other similar economies. The numbers are deeply concerning:

Increase in household debt as a share of the economy since Lehman Brothers filed for Bankruptcy in September 15, 2008

  • Canada: +48%
  • Australia: +19%
  • United States: -8%
  • Germany: -25%

Clearly, this is a big problem for our economy, and is feeding into growing doubts about Canada’s economic future.

Making the problem worse is the high-tax, big government policy being pushed by the government. As the government goes more and more into debt, it gives our country less breathing room to deal with exploding household debt levels.

And those household debt levels are made worse because the government takes so much of our money, forcing people further into debt to try and maintain our standard of living.

That’s why a total change in federal economic policy is needed.

Lower taxes, reduced spending, and cuts to regulations would be a big help to our economy and financial system, because it would make household debt more manageable, reduce the overall debt burden, and increase economic growth – which will reduce the impact of debt both for households and the government.

Yet, that is the exact opposite of what the federal government is doing. Their ideological obsession with centralizing power is putting our economy on the path to disaster, and it seems that disaster is getting closer by the day.

Spencer Fernando

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