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At TD Securities' annual financial services conference last week, Canada's top bank cop, Peter Routledge, reminded everyone how he's not a fan of fixed-payment variable mortgages.

He told the audience, "We’re making changes to capital requirements that 1) ensure both lenders and mortgage insurers are holding adequate capital for the risks presented by negative amortization, and 2) set incentives for lenders to prevent negative amortizations to begin with. Published October 20th and coming into effect, now in fiscal Q1, 2024."

"Ultimately, these are decisions that will be made at the lender level," Routledge added, and he's right. We recently spoke with a major bank exec on background about OSFI's efforts to discourage fixed-payment variables, which are arguably misguided. He suggested there's little appetite among most banks to do away with these products.

Canada's closely-watched 5-year bond yield is suddenly 38 bps higher year-to-date. That's swung bond market sentiment from partly sunny to cloudy in a hurry.

It makes this an opportune moment to dust off an old cliche: rates don't drop in a straight line. We've got to brace for intermittent zig-zags, the only normal in downtrends.

Of course, we hear this all the time. It's more instructive to actually see it.

On that note, you'll find charts below of all five BoC rate cut cycles this millennium. The arrows point to bond selloffs (yield rallies) in an overall downtrend. The terminus is the same in each case—rate cuts—but as you'll see, yields take many temporary detours along the way.

After almost 18 years, the man who built Scotiabank’s mortgage broker business retired last month. John Webster’s departure and Scotiabank’s pullback from mortgages last year left some wondering how committed the bank was to brokers and rate competitiveness.

To find out, we connected with the person stepping into Webster’s big shoes, Tracy Gomes, Senior Vice President of Real Estate Secured Lending at Scotiabank.

In this important interview, a gracious and transparent Gomes talks about how brokers fit into Scotiabank’s long-term plan, rate competitiveness, the bank’s digital eHOME channel, mortgage funding and branch relevance.

Here’s what she had to say on that and much more (key points are highlighted)...

On whether the bank's commitment to mortgage brokers has changed

The Bank of Canada is feeling tension after Tuesday's frustrating inflation data. But economists never expected great things from this report to begin with. Inflation's acceleration last month was as foreseeable as sunrise, mainly because the year-ago comparable was so unfavourable.

It's what happens this quarter that really matters. And now it gets real because Canadian and U.S. headline inflation have made no progress for six months. Moreover, challenging #base effects# are out of the way and can no longer be used as a scapegoat.

If the BoC doesn't get what it wants in the next few reports, we may shift from speculating about rate reductions to having a heart-to-heart on hikes. But that's not the mainstream expectation, so we might as well stay optimistic.

Before getting into the devilish details, here are today's latest readings:

• Headline inflation: + 3.4% (v.s 3.1% last month and 3.4% consensus)
• Avg. core inflation: +3.73% (vs. 3.67%, and up a disappointing 0.4% m/m)

Commentators blamed those aforementioned base effects for the uptick in the headline number, with gasoline prices playing a pivotal role—an inflation phenomenon felt globally, not just in Canada.

The real head-turners for the Bank were the two core measures. Markets expected them to slow. Instead, they not only rose, but prior months were revised higher. And note, "These are central tendency inflation measures totally unaffected by outlier price changes like mortgage interest," reminds Scotiabank Economics economist Derek Holt.

Predicting lower rates has become a national pastime. With millions of mortgage shoppers becoming armchair forecasters, rate-cut expectations have led to a higher-than-normal share of Canadians considering short-term mortgages.

Yet, for months, such borrowers have been frustrated by the fact that longer-term rates (e.g., 5-year terms) have fallen much quicker than 1- and 2-year rates. Well, hold on to your toques because there's finally good news on that front.