Canada's five-year bond yields reached their highest level in almost a year, in part due to improved employment numbers in the U.S., BusinessWeek reported.
"Banks are hedging seasonal mortgage flows, which is weighing on the five-year sector," Mohammed Ahmed, a rates strategist at CIBC told BusinessWeek. "Banks are receiving a fixed-rate asset and to hedge that, they typically pay the fixed rate in swaps, or sell cash bonds."
Canada's benchmark five-year bond yielded 3.04 per cent yesterday, the magazine reported, up 15 basis points from April 1 and the first time the yield has broker the three per cent mark since October 2008. The Bank of Canada will auction $3 billion worth of 1.5 per cent bonds tomorrow.
Most lenders raised five-year, fixed mortgage rates last week in anticipation of higher inflation. These rates will serve as the qualifier for borrowers when the new mortgage rules come into place on April 19.
Mortgage bond spreads tighten as borrowing costs dip
Banks start interest rate shake-up