Around The World In 100 Words - July 2017, Week 27

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Welcome back and hope everyone had a great Canada Day! With the glow of 150 years strong and counting still with us, what better course of action than to shift gears to the depressingly mundane topic of interest rates. In most cases in life, up is good. But when it comes to interest rates, it's more a double-edged sword -depending on whether you owe or own money.  

The Bank of Canada is expected to raise rates 25 basis points, or 0.25% this quarter, with another rate hike possible before the end of the year. For savers, this means higher yields on government and corporate bonds, both of which are positively impacted medium to long term by higher rates. Of course there is the inevitable short term downward pressure on bonds depending on their duration to maturity, before the positive impact of higher rates benefits bond holders. For borrowers, this means higher debt service costs, leaving less money for discretionary spending. The attached article highlights the reality of mortgage payment affordability for Canadians, with some worrying conclusions. Further it underlines our message that debt elimination is a cornerstone of financial security.  

Bottom line, bond fund holders will see their funds under some downward pressure as rates start to move up, but will benefit from higher returns medium to long term as higher rates means more interest earned! For borrowers, real consideration has to be given to re-focusing on paying down debt and locking in interest rates while they are still affordable. 

More to come on this later in the year. 
Martin Weiler