Interest Rate Report Q2 2021: Yield Curve Signals Back to Normal

Adam Jacobs • 8/6/2021
It’s hard to remember now, but prior to COVID-19 there were signs of an impending recession in Canada.


This was partly reflected in the yield curve, which was partially inverted – for example five-year bond rates were lower than the two-year bond. Largely the yield curve was flat, which reflects a hesitancy to “go long” and a diminished appetite for risk and long-term investment. The yield curve of mid-2021 has a more typical upward slope, consistent with an economic expansion. We’re seeing doubly positive signs for borrowers; rates are both much lower than the pre-COVID-19 environment, but the yield curve has also returned to a normal shape. It’s both easier to borrow, and there is greater investor confidence about the economy going forward. (Please note: the yield curve was compared to its 2019 equivalent. Mid-2020 represented the depths of lockdown and closures across Canada and does not serve as a valuable comparison.)


While five-year bonds are still low, they’re nowhere near the record low of 0.30% from August 2020. This rate is in about the same range as it was in 2015-16 – the beginning of a huge boom in office, residential and industrial real estate in most parts of the country. After the oil price plunge of 2014, sub-1% rates for the five-year bond have not been unusual in Canada. Although there are many outside factors to consider such as the labour market and immigration, the interest rate environment looks healthy for investors and occupiers. The extreme near-zero rates of 2020 could not be sustained and have arguably had negative effects in some areas of real estate (e.g., the concerning decline in single-family home affordability across the country). The current rates, while low in historical context, are still within the normal range of the past 5-6 years. Data sourced from Bank of Canada. © 2021 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.


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