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Why cut-rate mortgages won't be here for long

These are stories Report on Business is following Thursday, March 28, 2014.

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Whither mortgage rates
That cut-rate mortgage may not be here for long given a probable rise in bond yields, economists say.

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To recap, Bank of Montreal has slashed its key fixed five-year rate to 2.99 per cent, the same level that sparked a warning from Canada's former finance minister, Jim Flaherty, amid concerns over a potential bubble.

As The Globe and Mail's Tara Perkins, Bill Curry and Tim Kiladze report, Mr. Flaherty's successor, Joe Oliver, appears to be taking a hands-off approach, saying he's not planning to intervene in the mortgage market.

BMO's chief executive officer, Bill Downe, did give Mr. Oliver a head's up before the bank unveiled the cut.

BMO says it's got nothing to do with Mr. Flaherty's week-old resignation, but rather is based on the measure of the bond market and the fact that housing is entering its crucial spring season.

But one of BMO's economists suggests bargain rates won't last.

"Canadian mortgage rates are once again on the decline, reflecting the rally in bond markets this year," said senior economist Sal Guatieri of the bank's investment arm, BMO Nesbitt Burns.

"Dovish Bank of Canada talk, lower inflation, slower economic growth (albeit largely weather-related), emerging market turbulence, and Ukraine's crisis have helped drive yields on 5-year benchmark bonds down a quarter percentage point since the start of the year," he added.

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"That said, with growth expected to warm up alongside the temperatures, bond yields will likely turn higher this year."

Other observers also see higher, though not surging, rates going forward.

"We expect the pace of Canadian house price growth will slow this year," said Adrienne Warren of Bank of Nova Scotia's economics research department.

"Sales have been weakening since last fall as higher prices alongside tougher mortgage rules eroded affordability," she said in a new global housing outlook today.

"Recent declines in some fixed mortgage rates may provide some temporary relief, although modestly higher borrowing costs are still on the horizon as global growth picks up. An emerging oversupply of condominiums in several large urban centres also risks putting downward pressure on prices."

BlackBerry shares sink
BlackBerry Ltd. sales plunged below the $1-billion (U.S.) mark in the fourth quarter, but its results came in better than expected. Still, its stock sank, having climbed earlier in the day.

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As The Globe and Mail's Bertrand Marotte reports, BlackBerry sank to a quarterly loss of $423-million, or 80 cents a share, from a profit of $94-million or 18 cents a year earlier.

Revenue fell to $976-million from $2.7-billion.

BlackBerry's adjusted loss from continuing operations, however, was $42-million or 8 cents a share, far better than analysts were anticipating.

The company, which is being overhauled by a new, spunky chief executive officer, John Chen, also reported today its cash on hand sits at some $2.7-billion and that it's beating its own targets.

"We have significantly streamlined operations, allowing us to reach our expense reduction target one quarter ahead of schedule," Mr. Chen said in a statement.

"BlackBerry is on sounder financial footing today with a path to returning to growth and profitability," he added, noting that the company is looking at break-even cash flow by the end of its fiscal 2015 year.

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