Debt burdens outweigh Bank of Canada cuts

Posted on March 17, 2026 by Danielle Park

With higher oil prices expected to impact inflation, financial markets shifted from anticipating rate cuts to considering the possibility of rate hikes in Canada. In response, longer-term bond yields rose for the first couple of weeks of March, pushing up borrowing costs.

About 1.15 million Canadians are expected to renew their mortgages in 2026.

Renewing at today’s best 5-year fixed bank rate of 4.45% (up from 3.94% at the end of 2025) would push monthly payments above $3,400 for a typical borrower (average home price of 698K with 10% down and a 25-year amortization) — an increase of roughly $1100 per month since 2020 (when rates were about 2%)–payments up about 45%. Also, as credit conditions tighten and employment conditions weaken, it becomes harder to qualify for loans.

Weak labour data and downside risks associated with the upcoming review of the Canada‑United States‑Mexico Agreement (CUSMA) help reduce pressure on the Bank of Canada to hold tight against what may prove to be a temporary, highly uncertain, supply shock.

Many forecasters now frame 2026 as a set of competing scenarios — a prolonged hold at the current 2.25% overnight rate if trade uncertainty drags on, a mid-year cut if growth falters materially, or a late-year hike if resilience persists and inflation proves sticky.

Facts on the ground show that despite the BoC lowering its policy rate from 5% to 2.25% since June 2024, a record 15% of Canadian household disposable income is today going toward servicing debt payments — a larger percentage than when policy rates were double-digit in 1990. Today, it’s the level of debt that’s the problem.

Canadian household debt was above 177% of disposable income in the final quarter of 2025 (as shown on the lower left since 1991), and still, by far, the highest of G7 nations (shown on the right since 2004, courtesy of Desjardins).

The home price bubble ballooned mortgage debt along with it. While prices have been falling in many areas, mortgage debt remains elevated, with those payments swallowing up nearly 8% of disposable income alone (on the lower left since 1991). The mortgage interest debt service ratio is barely off its 2025 high (lower right since 1991).

The Bank of Canada estimates that the weighted average interest rate paid by households across all credit types is 4.75% today, and 4.48% for businesses (link here), significantly higher than the cycle low of about 3.5% in 2020-21.

As employment conditions deteriorate, the share of Canadian households more than 60 days behind on debt payments reached multi-year highs across all loan types in the 4th quarter of 2025 (Equifax).

We think rate cuts remain more likely than hikes in 2026, and they won’t help as much as hoped.

If the economy slows enough, treasury prices should rise (they started to this week) and that will bring fixed interest rates down some more. But it’s still going to take time to work debt levels down to where households can rebuild financial resiliency and free cash flow.

Douglas Porter Chief Economist at BMO Financial Group talks to Financial Post’s Larysa Harapyn about how the energy crisis unfolding in the Middle East could impact Canada’s economy. Here is a direct video link.

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Compounding shocks raise bear market odds

Posted on March 16, 2026 by Danielle Park

An oil shock amid rising credit stress and negative job revisions, unexpectedly pushing up unemployment.  Every cycle is a little different, but similar developments have marked the onset of past recessions and bear markets. Oil price spikes reduce economic demand, partly because they tend to keep interest rates higher for longer. The segments below do a good job of examining the implications of recent trends.

Private credit has exploded in recent years, drawing in major institutions and alternative asset giants, and even featuring more heavily in retail portfolios. But as cracks emerge in parts of the private credit space, we take a look at how the benefits of non-bank lending could be turning into vulnerabilities. Apollo’s Marc Rowan points to the broad appeal of private lending to institutions, while former Goldman Sachs CEO Lloyd Blankfein and former Federal Reserve Board Governor Daniel Tarullo worry about the harm it could cause for retail investors. Here is a direct video link.

A simply brutal reminder from Canada about the real state of the global economy. The Canadians backed up the US payroll number for February, except in Canada it was the largest loss of jobs since 2022. As one big bank economist put it, this is a “simply brutal” result. While everyone has been talking, really hoping for reflation maybe recovery, the opposite keeps showing up instead. Especially where it comes to employment. Here is a direct video link.

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Canadian bond prices surge on ‘unexpected’ job losses

Posted on March 13, 2026 by Danielle Park

In February, the Canadian economy ‘unexpectedly’ lost 83,000 jobs, the most since January 2022 (shown below since 2020), driving the unemployment rate up to 6.7% after a 25,000-job loss in January. Economists surveyed had expected employment to rise by 10,000 and the jobless rate to be 6.6%.

Employment declines were widespread and across both goods and services industries, with the private sector losing 72,600 jobs, and employment falling by 17,100 in the public sector. A 108,400 decrease in full-time employment was partially offset by a 24,500 gain in part-time work.

While Canadian stock prices are now negative on the week and month, bond prices surged on the belief that the Bank of Canada may now cut rates more than previously predicted. See, Canadian Bonds Surge After Economy Loses Most Jobs Since 2022:

“This is a pretty bad report,” Brendon Bernard, economist at Indeed Canada, said on BNN Bloomberg Television. “Everything is coming out pretty soft and we’re seeing declines across a range of sectors.”

The losses suggest the labor market remains soft as the economy bears the weight of US tariffs and an upcoming review of the US-Mexico-Canada Agreement looms over businesses.

…The loonie extended the day’s losses after the release of the jobs report, falling 0.4% to C$1.369 per US dollar.

While the data point to mounting economic slack, policymakers must also account for higher oil prices stemming from the ongoing conflict in the Middle East, which are likely to boost inflation at least in the near term. These are tough conditions for policymakers to navigate.

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