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Canada’s 5-year bond yield made a new multi-decade low yesterday, falling to 2.51%.
Yields have plunged for several reasons…
- Inflation is not only in check, but people are increasingly talking about global deflation
- The stock and commodity market collapses have people running for cover in safe government treasuries
- With our sputtering economy, the Bank of Canada seems poised to cut rates again in December
Today the 5-year bond yield is a bit higher at 2.58%. The spread between 5-year posted mortgage rates and bonds yields, however, is now seemingly absurd at 4.62%. The norm is 2.50%.
Then again, posted mortgage rates have remained stubbornly high as of late. For that reason they seem to be a less telling indicator of market rates than they once were. BMO’s recent move to cut its mortgage discount instead of lowering its posted rate is case in point.
Partial sources: Bank of Canada, InYourBestInterest.ca
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Quote du jour….
“People are denying it, but we are mirroring the whole Japanese situation and if that’s the case interest rates are going to go a lot lower.” – RBC Capital U.S bond trader, Tom Tucci (via Bloomberg)
