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.”
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%.