the rennie landscape - Fall 2021

rates

MAKING SENSE OF THE LACK OF CONSENSUS Most economists and analysts would tell you that bond yields will rise (they have to!) in the coming months and years, but they can’t seem to agree on how much.

Canada’s big banks employ large and impressively capable teams of market analysts to help them, and others, better understand the complex dynamics governing our economy (and those of other countries). Noting this, one might think that there would be some consensus, if not relative unanimity, in the outlook for certain variables, among them interest rates generally and five-year government bond yields more specifically.

Well, one would be wrong. Though TD, RBC, and BMO all see the five-year GOC bond yield rising through the remainder of 2021 and through to the end of 2022, the outlooks diverge in the magnitude of the expected increase. There still remains much uncertainty in our economic recovery and the potential impacts of Covid variants. That aside, we should all prepare for money to cost a little bit more a year from now.

MODEST RISE IN INTEREST RATES EXPECTED

5 -year GOC bond yield increase forecast by Q 4 2022 35-95 BASIS POINTS





BANK

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

BMO

0.99

0.97

0.85

0.95

1.00

1.10

1.20

1.30

TD

0.99

0.97

1.00

1.35

1.55

1.70

1.80

1.90

RBC

0.97

1.05

1.20

1.35

1.45

1.55

1.65

0.99

SOURCE: RBC, BMO, TD DATA: RECENT AND PROJECTED YIELD ON 5-YEAR GOVERNMENT OF CANADA BONDS, QUARTERLY

22

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