Here’s What You Should Know About the 5-Year Government of Canada Bond Yield

When people talk about mortgage rates going up or down in Canada, there’s one behind-the-scenes number that often drives those changes: the 5-Year Government of Canada bond yield. This unassuming financial indicator actually has a huge impact on the rates Canadians pay for fixed-term mortgages, personal loans, and more.

In this article, we’ll walk you through what the 5-year bond yield is, what moves it, why it matters for you (especially if you’re planning to borrow or invest), and what trends we’re seeing in 2024.

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What Is the 5-Year Government of Canada Bond Yield?

Think of a government bond as a loan that investors give to the government. In return, the government agrees to pay back the money with interest over a set period of time — in this case, 5 years.

The “yield” is the return investors get for buying these bonds. It includes the annual interest (called a coupon) and any gain or loss if the bond is sold before it matures.

Let’s say you buy a $1,000 bond with a 10% coupon. You get $100 every year for 5 years. If you hold it until maturity, the total return is easy to calculate. But if you sell it in the middle (and the bond’s price has gone up or down), your yield changes.

Yields are important because they fluctuate based on what’s happening in the economy — things like inflation, interest rate decisions, and market sentiment. That makes them a great indicator of where things might be headed.

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What Affects the 5-Year Bond Yield in Canada?

The yield doesn’t just move randomly. Here are some of the biggest forces behind it:

• Inflation: Higher expected inflation means investors want more yield to make up for their money losing value.
• Monetary policy: If the Bank of Canada raises interest rates, bond yields usually rise too.
• Economic health: Strong GDP growth or high employment can push yields up. Recession fears can pull them down.
• US bond yields: Since the US and Canada are so economically connected, movements in US bond markets often spill over.

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Why Should Canadians Watch the 5-Year Bond Yield?

Even if you never plan to buy a bond, this yield affects your finances. Here’s how:

• Fixed mortgage rates are closely linked to the 5-year bond yield. When yields rise, so do mortgage rates.
• Loan interest costs increase when yields go up, making borrowing more expensive.
• Investment strategy: Rising yields can mean falling bond prices, which matters for people with bond-heavy portfolios.

In simple terms: if the 5-year yield is climbing, expect fixed mortgage rates and borrowing costs to go up soon after.

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Historical Trends and 2024 Snapshot

The 5-year bond yield has had its ups and downs. In the early 2000s, it hovered around 4-5%. During the 2008 financial crisis, it plummeted below 2%. For most of the 2010s, yields remained low.

Then, between 2022 and 2023, inflation took off. The Bank of Canada hiked rates, and bond yields surged past 4%.

As of 2024, many analysts expect the 5-year yield to hover around 4.5-4.6%, depending on inflation data and rate decisions. That keeps mortgage rates high but stable — for now.

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How It Impacts the Housing Market and Economy

• Homebuyers: Higher bond yields = higher mortgage rates = reduced affordability.
• Homeowners: Renewals could be costlier if rates remain high.
• Businesses: Companies may delay expansion or hiring if borrowing becomes expensive.
• Government: Paying more interest on national debt limits public spending.

When yields fall, the opposite happens: cheaper borrowing, more spending, and often, a boost to the housing market.

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FAQs About the 5-Year Bond Yield

What does it mean when the yield goes up?
It means bond prices are falling, and borrowing costs (like mortgage rates) are likely to rise.

How is the bond yield set?
It’s determined by the bond market. Investors buying and selling bonds affect the yield based on what they expect from the economy.

Why does the 5-year yield matter more than other bond terms?
Because 5-year fixed mortgages are the most common in Canada, so lenders closely track this yield.

What’s the forecast for 2024?
Most experts expect the 5-year yield to stay between 4.3% and 4.6% until inflation drops or the Bank of Canada cuts rates.

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Final Thoughts: Watch This One Number

If you only track one number to get a sense of where Canadian mortgage rates might be headed, make it the 5-year Government of Canada bond yield. It’s not just a tool for investors — it’s a signal for homeowners, buyers, and business owners too.

Keep an eye on it, and you’ll be ahead of the curve when it comes to borrowing, budgeting, or refinancing.