Key points:
- Government of Canada bond yields provide insight into how fixed rates will move in the future.
- There are four big reasons to care about bond yields: the US market, inflation, employment rates, and the economy itself.
Government of Canada bond yields
The bond market is at levels we have not seen in over a decade. In this video, I explain why borrowers should pay attention to bond yields, and how they impact their mortgage and the economy.
Don’t feel like watching? Find the full transcript below!
Chris: [00:00:00] This is the Government of Canada five year bond chart and since the beginning of September it has been pumping to levels we have not seen for the past 16 years, since 2007. Now, the bond yield represents the return that investors get in government bonds if they hold them to maturity. And the yield is influenced by factors such as inflation, economic output and government policies such as changes to the prime rate.
Four reasons why the bond market has been so active
Chris: [00:00:29] Now, Canadian mortgage lenders use the bond yield as a benchmark to determine how to price their fixed rate mortgages so when bond yields go up, fixed rate pricing goes up and when bond yields go down, fixed rate mortgage pricing goes down with it. As an informed Canadian mortgage borrower, you really should care about Government of Canada bond yields because the direction of the bond yield will give you insight that you can use to determine what direction your fixed rate mortgage will be headed in the future.
Chris: [00:01:03] Now, there are four main reasons why the Canadian bond market has been pumping. Number one has to do with the US bond market. There is a magnetism between the US and Canada, so the direction that US bond yields go will have a very strong influence on Canadian bond yields. The second is that inflation in Canada remains stubbornly high at 4%. Third, we have still very strong employment numbers and the last is that the economy itself is still, it’s not growing strong, but it’s also not collapsing and remains very resilient. So the combination of these factors is keeping pressure on the bond yield to stay elevated. And as new data comes out week after week, month after month, that will influence bond yields and therefore your fixed rate mortgage.
Need more help or information?
Chris: [00:01:58] So as interest rates continue to their upwards climb, the question on everyone’s mind is when will rates drop? And the answer to that lies in bond yields. So I invite you to become an armchair economist with me. It’s not hard to do. I can send you a few links. I’ll include them in the description of a few charts you should be following and just check in every now and then and stay informed in the narrative so that way you can be the smartest person in the room next time the conversation of interest rates comes up. Till next time. Bye for now.
If you’d like to discuss your mortgage, you can contact me here or schedule a convenient call time directly into my calendar below.
