Canada

Canadian Bond Yields Are Climbing As Central Banks Turn Hawkish: BMO

Canadian bond yields have been sliding for the past few weeks, but that changed pretty fast. Global bond yields surged on Thursday after central banks expressed hawkish views overnight. By communicating their intention to ease stimulus, an abrupt market change occurred. Long-term yields have now climbed to the highest level in months. Experts say this might cause banks to reverse mortgage cuts made just days ago. 

Canadian Bond Yields Are Surging Higher With Global Bonds

Canadian long-term bond yields ripped higher today, along with the rest of the world. The Government of Canada’s 10-year bond yield reached 1.33% on Thursday, the highest it’s been since mid-July. “Before getting too excited, it’s important to note that the 10-year yield is still up just 4 bps from Friday’s close and remains well below the levels seen earlier this year,” said BMO senior strategist Benjamin Reitzes. 

The Global Outlook Is Fast-Changing

That said, he did write to clients about the surge in global bond yields today. They had been falling over the past few months, as Delta-variant concerns increased. Global slowdowns tend to require more stimulus and cheaper credit.

Sentiment rapidly changed course yesterday, as central banks began sounding more hawkish. Reitzes attributes the reversal to three key changes over the past 24 hours: 

  • The US pre-announcement of their intention to raise rates. 
  • Hawkish notes from global central banks. England, the Netherlands, and Brazil made statements indicating a stimulus taper.
  • Evergrande issues eased as China’s central bank stepped in to prevent contagion. The PBoC adding market liquidity sent the message it won’t allow contagion.

Rising Bond Yields Can Send Canadian Mortgage Rates Higher

Canadian mortgage lenders may have jumped the gun on lowering mortgage rates. Last week, when Evergrande was billed as China’s Lehman, global bond yields fell. Banks responded to falling yields with a cut to the 5-year fixed-rate mortgage.

Today they found out the economy is a lot stronger, and yields are rising. One mortgage expert shared Canadian mortgage rate cuts can reverse as early as next week. Hope you got a deal while you could, because they might be gone fairly fast.

Higher bond yields are a sign of economic strength, which is a good thing. Less stimulus is generally a good thing, since it means the economy can stand on its own. In the strange world of Canadian real estate though, higher rates tend to be bad news.

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