BOND YIELDS

Alberta Venture - - The Money Book -

Bond yields are an as­pect of fi­nance the av­er­age Cana­dian prob­a­bly doesn’t pay close at­ten­tion to, un­less they are a bond­holder them­selves. But ris­ing or fall­ing bond yields are a sig­nif­i­cant eco­nomic in­di­ca­tor. A week after Trump’s vic­tory, the Cana­dian gov­ern­ment’s 10-year bond yield climbed 27 ba­sis points to 1.43 per cent. As of De­cem­ber 5, the 10-year bond yield sat at 1.63 per cent. Bond yield is in­versely re­lated to bond value, so as yields rise, cur­rent bond val­ues de­crease and bond­hold­ers rush to sell them off. Ris­ing yields cause in­vestors to call for in­creased in­ter­est rates in an­tic­i­pa­tion of in­fla­tion. “Peo­ple are say­ing, ‘We’re go­ing to have in­fla­tion, in­ter­est rates will be higher and ex­ist­ing bonds are be­ing sold off and the value has been fall­ing lower,’ ” says Martin Pel­letier, founder of TriVest Wealth Coun­sel. “Peo­ple are pan­ick­ing and sell­ing off their bonds. As bonds sell off, the yield goes up.” So, ac­cord­ing to bond yields, Cana­di­ans should brace for higher in­ter­est rates and ris­ing in­fla­tion.

“peo­ple are pan­ick­ing and sell­ing off their bonds”

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