Canadian government bond yields have dropped back through their 5-month trading range. If you’re a market technician, this kind of activity typically hints to ongoing short-term weakness.
This weakness in yields is being driven, in part, by Mark Carney’s dovish comments yesterday. The BoC Governor suggested Q3 GDP will fall short of its 2% growth estimate.
Yields are also being weighed down by the loonie’s selloff and a slew of dull economic reports recently.
On the supply side, the stream of new bond issuances has been non-stop—but this supply is not boosting yields. Investment firm, Odlum Brown, says: “The Canadian bond market is absorbing new issue after new issue with no shortage of buyers.”
Here’s the recent effect on key bond yields:
- 1-year yields are at a new 5-month low
- 2-year yields are now at the bottom of their 5-month range
- 5-year yields are now down to 2.54%, from 2.89% a month ago
Bond yields affect fixed rates because they influence lenders’ cost of funds for fixed rate mortgages. Many mortgage lenders have already cut their rates as a result. 1-year fixed rates are now commonly being quoted below 2.50% through mortgage planners. 5-year fixed rates are below 4%.
