Home > banks, interest rates, macro economics, personal finance > Flatenning Yield Curve – Canadian Bond Yields go down

Flatenning Yield Curve – Canadian Bond Yields go down

Government of Canada Yield Curve flatenned since April 2010… flatenning means the long term bond yields decrease more than short-term yields… in fact short term yields on treasuries rose in direct response to increase in Bank of Canada rate in June & July 2010. 

Flatenning of yield curve is a sign of weak economic outlook and tame inflation. The economic outlook in Canada has deteriorated since April 2010… Last week’s release of Canadian economic indicators – wholesale sales, retail sales & consumer price index – were less than forecast

Graph showing Yield Curve of Government of Canada Debt

Source: Bank of Canada

Flatenning yield curve has the effect of reducing medium to long-term borrowing costs for business and households… E.g. – The 5-year fixed mortgage rate is priced relative to the 5-year Government of Canada bond yields which are currently at 2.4%… Usually the spread is about 120-150bps… which would mean the 5-year fixed mortgage rate should be about 2.4+1.5 = 3.9%… the best posted rate is about 4.25% … so if you are negotiating a mortgage be sure to use this and other research from here & here

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  1. July 26, 2010 at 8:27 PM

    Wonderful site and theme, would really like to see a bit more content though!
    Great post all around, added your XML feed! Love this theme, too!

  2. July 27, 2010 at 5:46 PM

    Here’s a question: is the flattening yield curve ultimately good or bad for housing prices?

  3. July 27, 2010 at 6:00 PM

    flatenning yield curve will be good for housing prices IF and only if the effect of flatenning is passed on to consumers as lower mortgage rates… otherwise it shouldn’t have an impact on house prices.

    I think it would also depend on the proportion of variable vs fixed mortgages… VRM is up 50bps or 30% (from 1.75% to 2.25% at Prime – 50bps) in the last 2 months and is expected to increase at least another 25bps before end of this year… I would like to see research on how much demand in 2009 was due to low rates…

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