Bank of Canada rate pause opens sweet spot for savers: Dale Jackson

Posted rates on one-year guaranteed investment certificates , for example, are currently as high as 5.65 per cent. Investors have not seen risk-free returns this high for over two decades. And with signs the Bank of Canada is winning the battle against inflation, less of that yield is being gobbled up by higher living costs.The combination of higher yields and tame inflation gives retirement investors safer options to compound their savings in bonds and other fixed-income products.

An effective way to maximize fixed-income returns is to stagger maturities over time to take advantage of the best going yields as often as possible. The most common strategy, known as laddering, ladders maturities over a fixed period of time.Along with its announcement to hold the line on interest rates, the Bank of Canada issued a statement leaving the door open for further hikes in the future if it loses its grip on inflation.

The belief that rates will not go higher, or the lack of clarity, is reflected in the inverted yield curve. That means yields on longer-term Government of Canada bonds are lower than shorter maturities. At last check, one-year to three-year maturities are yielding 4.63 per cent, five-year to 10-year maturities are yielding 3.74 per cent, and yields on over-ten-year maturities are 3.56 per cent.

“Not many strategists or investors are expecting the 10-year and longer to lose control; meaning the curve could re-steepen for the wrong reasons. There could be supply issues, inflation issues, or credit rating issues for the long end of the yield curve,” he says.“I still think that two-year investment grade corporate bonds are the exact place to extract yield,” he says.Maintaining a fixed-income strategy in a broader portfolio is difficult for the average investor.

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