In The Loop-Take 22: Decoding Yield Curves and High Interest Savings Setbacks

Stock Talk

In this episode, we dissect the financial indicators that are currently painting a vivid picture of the economic landscape. The conversation begins with a deep dive into the steepening yield curve and its historical significance as a precursor to recessions. Though the inverted yield curve has long been a reliable indicator of economic downturns, its effects are not immediately felt; the fallout could be delayed by months or even years. We shed some light on the current state where long-term yields have been climbing, especially in the US, inching towards a flat curve, which historically has brought economies closer to recessions, especially coming off a period of yield curve inversion. Transitioning from global economic indicators, the discussion pivots to the domestic financial arena, focusing on the High-Interest Savings Accounts (HISA) and the recent regulatory pullback in Canada. Over the last 15 years, the near-zero rate environment has challenged savers and low-risk investors to find yield, often nudging them higher on the risk curve. The recent uptick in rates ushered in a plethora of opportunities in the fixed income domain, particularly the High-Interest Savings Accounts ETFs, which offered a haven for capital while providing meaningful near-equity liquid returns with lower risk profiles, boasting up to 5-5.5% returns. However, this financial refuge didn't sit well with banks, leading to a robust lobbying effort to regulators to rein in on these products. The regulatory bodies acquiesced, introducing measures that pared nearly 0.5% off returns. This move, aimed at securing a backdoor 0.5% margin for banks, starkly contrasts with the ethos of ensuring the safety and security of Canadian investors. The episode also touches on the irony where certain banks and brokerages like TD have barred these trades, while risk-laden triple inverse emerging market crypto ETFs continue to operate without a hitch.