Inverted Bond Yield Curve – What Does it Mean?

A yield curve is a graph that depicts yields on all Canadian bonds ranging from short-term debt such as one month to longer-term debt, such as 30 years. Normally, shorter-dated yields are less than longer-dated ones.

The curve, in a normal market environment, is upward sloping as bond investors are likely to get higher rates in a longer-term market environment as opposed to short term. That's because the perceived risk in a longer-term environment is higher. In rare instances, this yield curve starts to get inverted, meaning longer-dated yields are lesser than shorter-dated yields. While this often foretells weakening economic conditions, the current decline in the bonds market is good news for Canadian fixed-rate mortgage borrowers with rates heading lower. At the very least, this risk means the Bank of Canada will remain cautious of increasing interest rates. A growing number of analysts believe the Bank of Canada's next move on rates will be a cut and that will be good news for variable rate mortgage borrowers too.

Reference: https://www.canadianrealestatemagazine.ca/market-update/lower-mortgage-rates-as-bond-yield-inverts-255835.aspx?utm_source=Pinpointe&utm_medium=20190401&utm_campaign=CREW-Weekend&utm_content=3AB553C5-4FBB-49B5-8918-4AF4FE09BBAB&tu=3AB553C5-4FBB-49B5-8918-4AF4FE09BBAB