Bond Yields at Multi-Decade Lows

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)