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Big Bounce in Bond Yields

5-year bond rates have spiked up quite a bit in the last 12 days.  The 5-year Canada yield has jumped 4/10% from its long-term low of 1.52% set on January 14.

Part of this is due to unexpectedly positive economic news, part is a reaction to the increasing supply of bonds on the horizon, and part is bond traders taking profits after one of the biggest bond rallies in recent memory.

The move has many now asking if yields are at some kind of bottom.

Research suggests that rate prediction is futile, but people are still taking note because of the correlation (historically anyway) between bond yields and fixed mortgage rates.

In absolute terms, bond yields have come down A LOT.  Check out this chart of the past few years.  The y-axis on the left is the percentage yield of the 5-year government bond.


Longer-term, bond yields have come down even more.  This chart of 5-year yields over the last decade shows just how far we’ve dropped.


A lot of trader-types think yields could retrace (i.e.  go up) at least a point or more, especially if the economy appears to be recovering faster than expected.  (Again, take that for what it’s worth–we don’t predict.)

If you’re a mortgage shopper worried about the potential of that happening, then today’s fixed rates (under 4.50% on a 5-year and under 4.00% on a 3-year) look pretty appetizing.  Fixed mortgage rates are basically at, or near, all-time lows.  Meanwhile variable-rate mortgages are hovering around 3.75% to 4.00%.

That minimal difference between fixed and variable rates seems to have captured homeowners’ attention.  We, for one, have seen a noticeable increase in homeowners wanting to lock in as of late.