Canada’s Newest Tax? Here comes NIRP

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While at our regular Tuesday morning gathering of the great minds in our office, we took an in-depth look at Negative Interest Rate Policy. NIRP has been flying under the radar for the average investor, but we have been tracking this international phenomenon since it started and doing our homework on this new experiment.

27% of the World’s Government Bonds have negative interest rates.

With this new experiment, those who buy certain government bonds will be paying the government for the right to own them. Since Federal Government bonds usuall have the best safety rating in their country, they are considered to be a safe haven for cash.

A Tax is a Tax is a Tax

You can call it something different than a tax, but when I pay money to the government for any reason, I consider it a tax.

We all wish we could cut this deal!

When we have bought bonds in the past, we lent the Government money and they paid interest to us. Under this new paradigm in the world we still lend money to the Government but now we will pay the government interest for this right.

Stephen S. Poloz is the current Governor of the Bank of Canada. He was asked in an interview if he would consider a Negative Interest Rate Policy for Canada. The fact that he answered in the affirmative has caused a ripple through the industry.

Central Bank Governors don’t make statements or answer questions like this unless it is definitely on the table.

Banks will pass this cost along to us

Our Banks must keep a percentage of their money in reserves. These reserves are invested in Government Bonds. Our financial institutions will be paying to have mandated reserves.

This will cut into their profit margins and at some point this cost will be passed along to us. I expect we will have higher or more fees. 

I don’t think our banks would increase interest rates to the public in a Negative Interest Rate environment - bad optics.

Fees Are Forever

A second reason is Fees are Forever. As in the past, banks will add fees and continue to charge these fees if and when this situation changes.

How to Invest in this new paradigm?

This is just the easy research. Knowing how to invest in this environment will be even more convoluted than in the past. We went from record high interest rates in the early 80’s to probably negative rates soon. What a wild ride for we investors.

As my clients know:

  1. I had my clients buying 10 and 20-year strip coupons in the early 90’s, locking in double digit returns. The public was investing their GICs for one year terms, waiting for interest rates to go back to the old days of mid teen rates and higher. I told anyone who would listen that unfortunately for them we were going back to the old days; down to our long term average of mid single digit interest rates.

  2. When the tech bubble burst, my clients’ portfolios were not concentrated in technology investments, as most investors were. To me, this was a clear and obvious bubble and I wouldn’t chase this short term hysteria.

  3. I was ready for the downturn before the market peak in 2008 and prepared clients’ portfolios for this. I studied history and acted appropriately at the bottom of the market in 2009. My average client’s portfolio was higher than the peak by summer 2009 and continued up from there. The TSX is currently below that peak of 8 years ago.

This upcoming situation is a call to action that most don’t recognize, let alone know what to do. Be ready this time.

Studying markets, years of experience, wisdom and being agile will get my clients through this. It will be tough on investors; especially when the press and talking heads get more attention through sensationalism.

YOUR INDEPENDENCE MATTERS and if you want to see what a truly independent investment/insurance advisor can do for you, call me at 905-846-9060, ext.3838, email me at or visit my website at