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Bond Yields March Higher

5-year bond yields have been on a one-month ascent.  They’ve now risen over 1/2% from their multi-decade lows in March.


The upswing comes thanks to positive economic data out of the U.S.  Bond traders are seeing hope beyond North America’s current economic doldrums.  They’re also becoming increasingly wary of inflationary threats

That’s got many thinking we’re approaching the end of Canada’s current rate cutting cycle.  Some economists are now predicting just one more 1/4% cut before the Bank of Canada sits back and evaluates the fruits of its efforts.

Thing are far from clear cut, however.  All of this talk contrasts sharply with the Bank of Canada’s warnings about a big economic slowdown.  On Thursday, Mark Carney stated again that “some further monetary stimulus will likely be required” to keep Canada’s economy on track.

How much and when?  Nobody knows for certain.

Regardless, Canada’s rising bond yields are of real interest to borrowers and brokers.

Borrowers waiting for fixed rates to drop lower, before locking in, may be keeping a close eye on rates over the next month or two.  Fixed rates are closely linked to bond yields.

As for mortgage planners, bonds yields are often used as a leading indicator for fixed rate increases.  Brokers therefore watch the bonds to help advise clients and try to determine when to lock in rates they may be “floating.”

(“Floating” is when a broker lets a fixed rate commitment stay variable until the client’s closing date.  Brokers do this to get better rates from a lender, but it can be risky.)

Keep in mind, both of the above scenarios entail market timing.  Market timing is when people try to outguess the interest rate markets.  This is an absolute no-no in the minds of academics.  It really is a huge gamble.  Yet people seem determined to do it every day.