The final stage of grief for rates markets: acceptance

Although recent moves are catching headlines, the underlying dynamics remain the same for bond markets as we price in higher-for-longer outlook and discount the probability of returning to the old rate-cut reaction function from central banks. This is simply a continuation of the trend. The move we’ve seen in longer-term bonds is noteworthy. While most of the previous volatility in rates had the largest impact on the short-end of the yield curve, we’re now seeing more pronounced repricing in longer tenors (i.e. 5 years, 10 years and 30 years). For example, 5-year rates in Canada are a key barometer of 5-year fixed mortgage rates, and similar for the US long bond and US mortgages that can carry a 30-year term. As rate volatility spreads further out the yield curve, this is a trend worth watching.