Yields Are All Over The Map

The bond market (which influences fixed mortgage rates) has had wild spikes and drops in the last 9 months.

Since May, bonds have made more back-to-back directional changes than they have in years.

5-year_Bond_Yields

Consecutive up and down swings usually suggest trader indecision.  This time is no different.  The bond market doesn’t know where it wants to go and the economic picture has been too murky for yields to break out of their 9-month trading range. 

That’s made mortgage holders pretty happy. Prime rate has stayed put and long-term fixed rates are only 1/4% (roughly) above their all-time lows. Normally, rates would have risen more, but spread compression last spring and summer offset a lot of upward pressure.

Looking ahead…

In the short term:

  • Thanks to a 30 basis point drop in 5-year bond yields since January 1, longer-term fixed mortgage rates may drop marginally from here.
  • Yields had a big bounce off of support today.  It will take a good heaping of economic doom and gloom for them to drop much lower.

Long-term:

  • Not much has changed since last Friday’s round of interest rate predictions.
  • The U.S. FOMC said today that the economy is slowly strengthening. On the other hand, they’re still forecasting rates to be at “exceptionally low levels” for “an extended period.”
  • Canada’s rate market will take most of its cues from the Americans. Nevertheless, the Bank of Canada has said it will operate independent of the Fed if inflation reappears faster than expected. This would not be unprecedented. “After each of the last two major North American slowdowns, the Bank of Canada hiked rates ahead of the Fed,” said CIBC economist, Avery Shenfeld.
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