Artis Real Estate Investment Pref Shs Series E T.AX.PR.E

Interest rates

[canadian]

Even if BcC cut's interest rates to 3 to 3.5% by end of next year, wouldn't 5 year bond yield be around 3% which in turn will result in close to 5% 5 year fixed variable (which we already have now). I am specifically talking about residential. I am not sure how commercial mortgage rates work.

https://wowa.ca/interest-rate-forecast

I think everyone should be prepared for 3 to 3,5% canadian 5 year bond yield for longer term

[Torontojay]

Yes, that sounds about right.  An alternative and useful way to think about the 5 year bond yield is to ask yourself, what is the expected nominal gdp for Canada over the next 5 years? If the answer is 3.5%, then a 5 year bond yield should be priced no higher because it is considered a risk free rate. Whereas gdp is not a risk free outcome which consists of debt plus equity. The economy

[Torontojay]

To add to this discussion, the spread between a 30 year fixed mortgage rate and a 10 year treasury is about 1.5-2%. If we use this as a guide then a 3% 5-year government bond yield is equivalent to about a 4.5-5%  5-year fixed mortgage rate. In theory, it should be less than a 1.5-2% spread because Canada has a lower duration term (5 years vs 30) and consequently less duration or credit risk.