Rob Carrick, the personal finance columnist, for the Globe and Mail, had a recent column about how 5-yr GIC rates are related to the five-year Canada bond.
For context, let’s take a look at the last 22 years of the Government of Canada 5yr benchmark bond yield.
The horizontal blue line is the average over the last 22 years.
Toward the end of March 2022 the Canada 5-yr benchmark bond yield rose
above its long-term average of 2.48% for the first time in over a decade.
By historical standards, the 5-yr benchmark bond yield isn’t abnormally high.
It’s just that we’ve had ten years of sustained, abnormally low rates.
Keep that it mind when thinking about where rates might go.
As Mr. Carrick stated in his article, “five-year GIC yields are influenced by the five-year Canada bond”. Let’s zoom in to January to September 2022 and see how influenced they are.
The objective, mathematical way of measuring influence is called correlation.
If two sets of data move in perfect lock-step with one another they have a correlation of 1.
The correlation coefficient for the Canada 5-yr benchmark bond yield and the
average 5yr GIC rates of all the 28 banks WhatBank follows is 0.92. That’s pretty tight!
Historical 5-yr GIC rates: January to September 2022
Here are the 5-yr GIC rates for January 1 to September 30, 2022. Clearly, the big increase earlier this year has paused. Will it stay around 5% for the most competitive banks, start to trend back down or, continue its ascent. No one knows, which doesn’t stop everyone from making a prediction. Present company excluded.
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