The Government of Canada 5 Year bond yield reached 1.978% the highest level in the span of a year. Thus, Canadians should be prepared to pay higher mortgage rates, as the easy credit comes to an end. The boost in the economy and inflation at its peak are making yield expectations higher. With the rise in the GoC 5year bond yield, there will be an increase in the fixed-rate mortgage as well.
The GoC 5 year bond yield influences similar credits. Since credit markets have a highly competitive environment, bond there will be tough competition among the issuers for investor capital. Government is the least likely to default on the bond payments will get the cheapest rates. As the government is considered as the least likely to default so they get it at a cheaper rate.
As the product risk increases interest to be paid to the bondholders also increases which includes the bonds utilized to fund the mortgage. The GoC 5 year yield affects the cost of a 5 years fixed-rate mortgage. It is directly proportional to the borrower’s pay rate. With the rise in the bond yield, the borrowers entering the contract will also have to pay more. If there is a decline in the bond yield while the borrowers are borrowing, then they will have to pay less too.
The highest increase of Canadian 5 Year Government Bonds
Recently the Canadian 5-year government bonds yield experienced a rise of 38.04 points higher. The rate of the hike is 25bps which is massive for 5 days. While analysing the growth from near-record.
Government of Canada 5 year yield bond
The bond yield has not been this high since 2018 when the yield became 3 times higher at 1.75% overnight. It is significant to note that this segment affects only the 5year fixed rate. With such an increase the borrowers have moved towards much lower variable rates mortgage. These variable rates mortgage is based on the Bank of Canada overnight rate which has lagged, resulting in a huge gap between mortgage funding costs. With an assured increase in both 5Year bond yield and variable rates, the era of cheap home buying might come to an end in the near future.
