Dave Larock in Monday Interest Rate Update, Mortgages and Finance, Home Buying, Toronto Real Estate News Editor's Note: Dave's Monday Morning Interest Rate Update appears on Move Smartly weekly. Check back weekly for analysis that is always ahead of the pack.
Rising inflation would normally be expected to push bond yields and mortgage rates higher.
Inflation erodes the purchasing power of money over time, so if investors believe there will be more of it, they will demand a greater return on their money in order to ensure that their expected future profits are protected.
At least, that’s how it is supposed to work in economics class.
When Statistics Canada released its latest Consumer Price Index (CPI) last Wednesday, a funny thing happened. Despite the fact that the latest report, for June, showed average prices rising by 2.40% on a year-over-year basis, Government of Canada (GoC) bond yields fell on the news.