In a year when very little is going right in a financial sense, the summer rally in the bond market seemed to offer some hope for better times to come.
I like to focus on the five-year Government of Canada bond in gauging what’s happening in the fixed income market because it’s a middle ground between short- and longer-term bonds and because it influences five-year mortgage rates. The five-year Canada bond yield recently hit a high for the year of nearly 3.7 per cent, which compares to 1.25 per cent at the end of last year.
The bond market has since re-embraced a more gloomy outlook about inflation and rates, which has meant a drop in bond prices. As bond prices fall, yields rise . Higher yields are good news if you have new money to invest in bonds or guaranteed investment certificates. But if you’ve owned bonds or bond funds for a while, you’re getting hammered. More downside is possible.