Real Estate

BoC Five Year Bond Yield

  • Last Updated:
  • Mar 28th, 2023 4:59 pm
[OP]
Penalty Box
Sep 27, 2008
1015 posts
1227 upvotes

BoC Five Year Bond Yield

Just opening up another discussion on the five year bond yield as it has occasionally cropped up (off topic) in other threads.

At the beginning of the last thread on this topic (Aug 2022), yield was about 2.6-2.7. In the seven months since that low point, it’s mostly been above 3 and now hovers at 3.2.

My personal prediction is, absent some unknown shock, we will stay around this level (+-.5) for at least another year. I will leave it to the mortgage experts to discuss the impact on mortgages, but affordability has certainly massively eroded from 1 year ago, when the yield was ~1.8.
686 replies
Deal Addict
Nov 13, 2013
4232 posts
2669 upvotes
Ottawa
Good summer but one other observation is in the summer and again in the fall it was around 3.5 so we are still below the peak.

I think you're right =/- .5 but 3.5 or 2.5 have different impacts on housing. 2.5 and 4% mortgage rates would be much more conducive to a rebound this spring. 3.5 and 5% is maybe a push towards total capitulation and another sharp decline.
Deal Addict
User avatar
Oct 27, 2002
1856 posts
630 upvotes
Toronto
Three important reads over the next 2 weeks that will shape Canadian bond yields (in my opinion):
- Tomorrow: Canada unemployment. Expectation is slight uptick. So far there have been surprised to the positive.
- Next Tuesday: US January inflation. Expectation is slightly below December.
- Following Tuesday: Canada January inflation. Expectation is significantly below December.

In my opinion, inflation data in the short term unlinks between Canada and US. You can already see consumer activity restarting in the US, meanwhile I believe it's subdued in Canada -- due to the immediate increase in mortgage interest payments for a large portion of the population.

I also do not see the 5yr bond doing another major in the next little while. Mortgages should therefore stay at about 5%. That's not the end of the world, but should continue to have small downward price pressure on housing.

Yield curve on 10yr - 2yr is ever so slightly approaching -1.0%. It's just under. I think there was a brief period were it was below -1% a few months ago, and I feel like it's moving there again.
Deal Addict
User avatar
Oct 27, 2002
1856 posts
630 upvotes
Toronto
Canadian unemployment defied expectations: steady at 5.0%, 150K jobs added in January. Even more than US on relative basis.

Bond yields surged.
Deal Addict
User avatar
Oct 27, 2002
1856 posts
630 upvotes
Toronto
Per Rob Butler on Twitter, fixed mortgage rates have been inching up all week. Probably nothing major yet.
Member
Aug 24, 2019
440 posts
630 upvotes
f00kie wrote: Canadian unemployment defied expectations: steady at 5.0%, 150K jobs added in January. Even more than US on relative basis.

Bond yields surged.
Good for job seekers, not so much for folks looking for softer interest rate regime in the near term.
Deal Expert
Feb 29, 2008
19643 posts
18190 upvotes
Tarrana & The Ri…
f00kie wrote: Canadian unemployment defied expectations: steady at 5.0%, 150K jobs added in January. Even more than US on relative basis.

Bond yields surged.
Surging off of faulty data. Remember the US had to walk back their numbers Face With Tears Of Joy
Deal Addict
User avatar
Oct 27, 2002
1856 posts
630 upvotes
Toronto
JayLove06 wrote: Surging off of faulty data. Remember the US had to walk back their numbers Face With Tears Of Joy
Which numbers? It's still 500K in US in January for now... there could be some faultiness to it, but have they officially walked it back?

I am seeing some reports of minor upward adjustment to US CPI for December. I think the January US CPI will be one to watch.
Deal Expert
Feb 29, 2008
19643 posts
18190 upvotes
Tarrana & The Ri…
f00kie wrote: Which numbers? It's still 500K in US in January for now... there could be some faultiness to it, but have they officially walked it back?

I am seeing some reports of minor upward adjustment to US CPI for December. I think the January US CPI will be one to watch.
Read it on Twitter. But those numbers can’t be right.
[OP]
Penalty Box
Sep 27, 2008
1015 posts
1227 upvotes
f00kie wrote: Canadian unemployment defied expectations: steady at 5.0%, 150K jobs added in January. Even more than US on relative basis.

Bond yields surged.
Wow, big moves today is right. One more tick on the side of “inflation is likely sticky”. Not great for those looking to renew at lower rates.
Sr. Member
Sep 28, 2008
621 posts
635 upvotes
How long before realtors stop of obsessing over record low interest rates?
Deal Addict
Nov 13, 2013
4232 posts
2669 upvotes
Ottawa
JayLove06 wrote: Surging off of faulty data. Remember the US had to walk back their numbers Face With Tears Of Joy
What the US does not very relevant. Unless there is a new North American tendency for people to lie and say they have a job or otherwise skew the data. Last month was walked back a bit so it could be an overestimate but surely it's way above 15k that was consensus.
f00kie wrote: Canadian unemployment defied expectations: steady at 5.0%, 150K jobs added in January. Even more than US on relative basis.

Bond yields surged.
Surged is a stretch. its 10 basis points. Sure that's not nothing in the bond market but it's not too dramatic on it's own. It puts one more hike on the table though and that could make things interesting.
[OP]
Penalty Box
Sep 27, 2008
1015 posts
1227 upvotes
Medellin wrote: How long before realtors stop of obsessing over record low interest rates?
Individually? Never. The goal posts will just move to how “these rates are historically low if you look at the …” blah blah blah

Collectively? The noise will be greatly reduced over time as the ongoing RE slowdown causes many of them to switch jobs.
[OP]
Penalty Box
Sep 27, 2008
1015 posts
1227 upvotes
fogetmylogin wrote: What the US does not very relevant. Unless there is a new North American tendency for people to lie and say they have a job or otherwise skew the data. Last month was walked back a bit so it could be an overestimate but surely it's way above 15k that was consensus.



Surged is a stretch. its 10 basis points. Sure that's not nothing in the bond market but it's not too dramatic on it's own. It puts one more hike on the table though and that could make things interesting.
The drama is in slowly changing the minds of people that think rate cuts are coming any minute now. Once we flip from the (near) consensus being “inflation is transitory “ to “inflation is sticky”, asset prices will drop quite a bit again.
Sr. Member
Aug 15, 2018
906 posts
903 upvotes
Bonds drop a little: meh.

Bonds up a little: inflation will stick, assets price will drop, apocalypse.
[OP]
Penalty Box
Sep 27, 2008
1015 posts
1227 upvotes
US tensions ratcheting up with China and Russia limiting oil output. Not great for inflation figures.
Deal Addict
Nov 13, 2013
4232 posts
2669 upvotes
Ottawa
blackhatt wrote: The drama is in slowly changing the minds of people that think rate cuts are coming any minute now. Once we flip from the (near) consensus being “inflation is transitory “ to “inflation is sticky”, asset prices will drop quite a bit again.
I don't think there is much smart money betting on cuts in 2023 as likely. Some are hedging or seeing it's cheap to bet on a cut which would follow deepish recession which is still very possible if not likely. I think it's about the same on the other side. Runaway inflation and thus more hikes also unlikely. All that to say your top of the thread prediction is probably the 60% likely outcome. 20-20 or 30-10 in either direction depends on your perspective though makes a big difference in investment choices. Buy a rental or pre-con today and there is a 30% chance you get wiped out that is substantial. I suppose sitting on the sidelines if you are out of the Real Estate market with a 30% chance we see cuts is also a risk. The difference is cuts most likely follow a recession so not clear that's good news for the rental or resale market.
Member
Aug 24, 2019
440 posts
630 upvotes
blackhatt wrote: US tensions ratcheting up with China and Russia limiting oil output. Not great for inflation figures.
This is the major concern atm. Unpredictability creeps in due to these factors that no one has a good grip on.
[OP]
Penalty Box
Sep 27, 2008
1015 posts
1227 upvotes
Great thread on the recent US print:



Looks like the five year bond traders didn’t like the news.

BAX prices - a favourite of many here - now imply a 25 bps increase as 53% probable in June.

I can’t help but think of the user who came in the last thread and was advised to wait 3-6 months because rates are dropping when he asked whether he should renew. Dangers of taking financial advice from the internet I guess.
Deal Addict
User avatar
Oct 27, 2002
1856 posts
630 upvotes
Toronto
I don’t think it’s a danger of taking financial advice from the internet. The danger is trying to forecast anything. The world and the market has seemingly become more volatile since 2010.

In other news, Canada 2yr minus 10yr bond is finally inverted by over 1.0%.

Top