Canada 10-Year Bond Yield

Latest Canada 10-Year Bond Yield: 2.88%

As of 19th May, 2022

Canada 10-Year Bond Yield Overview

0.000.501.001.502.002.503.003.504.004.505.005.506.00Bond Yield %01 200201 200401 200601 200801 201001 201201 201401 201601 201801 202001 2022

Canada 10-Year Bond Yield Historical Data

Current 5-Year Bond Yield has been highlighted.


What are Bond Yields?

Bond yields are the expected returns when purchasing a government bond. Government bonds are considered risk-free assets because they are guaranteed by the government and will always be paid back as the government has the power of taxation. Bond maturities and yields can range between 2 and 30 years. The 10-year bond yield is often used as a proxy for interest rates and a sign of investor expectations of the economy.

How do bond yields affect interest rates?

Interest rates on most financial products are higher than bond yields. When creditors and lenders sell you a mortgage, car loan, or some other product, they take on a certain amount of risk because you could default on your mortgage or you could end up repaying the mortgage early.

By lending you money, they give up the option of buying risk-free bonds which would have been default free. Creditors and lenders will add a risk premium to compensate them for the risks associated with lending you money.

For example, let’s say you want to buy a new $500,000 house, so you ask the bank for a 10-year mortgage loan. The bank could either give you $500,000 or they could buy $500,000 worth of government bonds. Since government bonds are guaranteed, all else equal, banks will prefer not to lend you money.

Even if you pay a mortgage penalty, mortgages are usually repaid early when interest rates fall, so the lender would be unable to get the same interest payments as before. In either case, the bank would lose money, so to compensate them for this risk, you will be charged a higher interest rate.

Since interest rates on financial products are directly tied to bond yields, if 10-year bond yields increase, 10-year interest rates increase as well. However, creditors and lenders are typically inclined to increase interest rates faster when bond yields rise, to lower their exposure to the volatility of bond yields.

Interest Rate Spread

The interest rate for any financial product usually follows the bond yields. Generally, this spread is about 1-2% and represents the risk premium. Since this spread is based on the risk premium, it can increase during times of uncertainty. For example, at the beginning of the Coronavirus pandemic, lenders briefly increased interest rates because default risk increased.

For reference, here is the 10-year fixed mortgage rate spread:

Last Seen10-Year Canada Bond Yield10-Year Mortgage Rate EstimateSpread
January 20210.8055%2.14%1.3345%
January 20201.4923%2.99%1.4977%
January 20191.9536%3.89%1.9364%

Canada 10-Year Bond Yield Forecast 2021

BankEnd of 2021 Forecast
National Bank2.05%

How are bond yields determined?

Bond yields are the annualized returns on Government of Canada bonds. This includes both the coupon payments (the bond’s interest rate) and the returns you receive from any changes in the market price of the bond. Bond yields are often decimals because the returns from price changes or capital gains are controlled by investors.

The coupon rate listed on a government bond is not what the investor receives. Instead, this rate is divided by two and, every six months, the investor receives this as a semi-annual coupon payment. The coupon payment remains fixed throughout the lifetime of the bond, however,changes in the market price of the bond can also affect returns.

If the market price of the bond is greater than the face value, then the bond yield will be lower than the coupon rate, and if the market price is less than the face value, the bond yield will be higher than the coupon rate.

How are Government of Canada bonds issued?

Government of Canada bonds are issued during bond auctions, where they are bought by large banks and financial institutions. The bonds have fixed face values, terms, and coupon rates, which banks and financial institutions then bid on.

Primary dealers or government securities distributors are institutions that are authorized to bid during Government of Canada bond auctions. Some examples of primary dealers are RBC, TD, Scotiabank, CIBC, BMO, HSBC, Desjardins, and National Bank. Once these institutions buy the bonds, they resell them to clients, so the prices you have to pay for government bonds are set by primary dealers.

Government of Canada bonds have par values of $100, but they have face values of $1,000. Therefore, while the price of a bond might be $101, it would cost $1010 to purchase.

If primary dealers think the coupon rate on a bond is too low for current market conditions, they might only be willing to pay $99 for the bond or if the coupon payment is generous, they might be willing to pay $101 for it. This is where the bond prices come from that are used to calculate yields.

Primary dealers determine if the coupon rates on bonds are enough to compensate them for other opportunities. Just as the opportunity cost of lending is government bonds, the opportunity cost of government bonds is lending and investments. If markets are thriving, the banks and financial institutions will demand a higher coupon payment or the price of the bond will drop.