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%.
Last modified: April 28, 2014
Interesting that you use the term “ongoing short term weakness” when describing the bond market currently.
In fact, with yields down, it indicates ongoing short-term STRENGTH in the bond market lately.
Hi Dan,
This story is actually about bond yields, which move inversely to bond prices.
Of course, you are correct in saying that weak yields = strong bond prices.
Cheers,
Rob
The 5-year yield has now dipped down to 2.50%.
This is a level it was at in May, when the 5-year fixed mortgage rate was at its record low.
However, 5-year fixed mortgage rates are currently about 0.50% above their record lows from May. Hopefully we see those rates come down in accordance with the yield.