As investors do not pay as much attention to bond markets as they do to equity markets, it is worth nothing that in recent weeks bond yields have been heading higher. After setting a low of just under 2 percent at the beginning of Q4 of this year, the yield on the Government of Canada 5-year bond has increased steadily to 2.58 percent.
Increasing bond yields is not exactly good news for borrowers. Banks have started increasing the interest rate on mortgages. TD Canada Trust, for instance, announced yesterday that it is hiking the rate on a 5-year closed mortgage by 20 basis points to 4.24 percent. If you are homeowner and your fixed-rate mortgage is coming up for renewal, you may want to shop around and lock in a lower rate that is still available through other lenders. Slightly higher rates are no reason to panic because the Bank of Canada expects interest rates to stay low for a long period. But note the caveat: households should make sure that they can the service their debts at normal interest rates.
Higher bond yields should offer some cheer for savers who have suffered through a period of abnormally low interest rates. However, increasing bond yields also means that existing holdings will fall in value. Bond investors may want to consider shortening the duration of their bond holdings.
