Hey, been a while. Hope you’ve been amazing. I went to Morocco a few weeks ago and had the best time. Here’s me on a camel in the Sahara desert:
That’s not AI… I swear!
Anyways, if you’re planning to buy a home, renew a mortgage, or simply want to stay sharp on where rates might be headed next … this is something you’ll want to know.
Canada’s 2-year government bond yield (2.805)% just rose above the Bank of Canada’s policy rate (2.75%) for the first time in over two years.
Why does that matter?
This kind of shift has foreshadowed major turns in interest rate policy … even before the Bank says a word (with their next announcement July 30, 2025).
Let’s break it down!👇
📘 What Is the Bond Market … and Why Should I Care?
Think of the bond market as a financial forecasting tool … a window into what investors believe is coming next for the economy. Is it time to …
💸 Spend or save?
📈 Buy the dip or sell the top?
🏡 Lock in a mortgage or ride the variable wave?
The bond market doesn’t always scream … but when yields shift, the whispers might be worth a listen.
🧠 Bond Yields 101
Think of bond investing like lending money to someone with a contract attached.
Governments issue bonds - IOUs with set interest payments and a promise to repay the principal at maturity.
The interest you earn is called the coupon.
The yield is the return investors expect based on the bond’s current price. The yield is what we care about the most.
The 2-year Government of Canada yield reflects what investors demand to lock in money for two years. If that yield rises above the Bank of Canada’s overnight rate, it sends a signal:
Markets don’t expect any more rate cuts
Inflation may be sticking around
Or possibly, further tightening could be on the table
Bottom line? The bond market is quietly telling us something the headlines haven’t yet.
🔎 What Just Happened
🏦 BoC Overnight Rate: 2.75%
📈 2-Year Bond Yield: ~2.805% (as of July 18, 2025)
That’s an inversion.
And it matters because in the past, this kind of move has preceded a pause or pivot in monetary policy. Not always … but often enough to pay attention to.
📍 Key Historical Examples
▪ Mid-2017 – End of the Rate‑Cut Cycle
In July 2017, the Bank of Canada lifted the overnight rate from 0.50% to 0.75%
At that time, the 2‑year bond yield climbed above the overnight rate, trading near 1.0% (with reports showing a jump to ~1.19%)
Markets were clearly pricing in rate hikes, not cuts. And sure enough, the BoC raised rates again in September 2017
▪ Early 2018 – Pre‑Hiking Phase
In early 2018, the 2‑year yield once more moved above the overnight rate, ahead of BoC hikes in July and October 2018
That pattern reflected tightening inflationary pressure and confidence in economic growth, prompting the central bank to continue its tightening cycle
▪ 2022–2023 – Yield Curve Inversion & Hikes
The BoC launched an aggressive hike cycle starting in March 2022, raising the overnight rate from near-zero to 4.25% by December 2022.
By July 2022, the 2‑year bond yield briefly exceeded the policy rate, signaling markets expected continued tightening … well before official cuts began in July 2024.
📊 Inflation Update – July 2025 (June Data)
Now let’s turn our attention to the latest CPI release:
Headline Inflation: 1.9% YoY (up from 1.7% in May)
Monthly CPI: +0.1% (seasonally adjusted: +0.2%)
Core Inflation (BoC’s focus):
CPI-Trim: 3.0%
CPI-Median: 3.1%
Even though headline inflation is down to 1.9%, core inflation (the number the Bank really watches) is still sitting at 3.1%. That’s above their 1–3% target range and still a touch too high for comfort.
While cuts aren’t necessarily off the table (sorry-not-sorry for the clickbait email title), the Bank is walking a tightrope:
Cutting too quickly risks reigniting inflation, especially with core measures still pressing against the upper bound. Coupled with the inversion… the Bank is in a really interesting spot.
🤔 Refutations, Pushbacks & Assumptions
1. “The yield spread is tiny. Why care?”
Size matters. But in this context … it’s the directional change that matters more. This is the first time in over 2 years we’ve seen the 2-year yield cross above the policy rate.
2. “Correlation ≠ causation. Maybe nothing happens.”
True. And one tweet, one firing, one Coldplay Concert Cheating Scandal can change things drastically for families and corporations alike. But historically, this bond market pattern has preceded rate pauses or pivots more often than not.
3. “Inflation is under 2%. Isn’t that good?”
Headline CPI is. But the BoC watches core measures like CPI-trim (3.0%) and CPI-median (3.1%), which are still sticky and not where the BoC wants them.
4. “Oh great, more fear-mongering…”
It’s just data, numbers, and perspective. You don’t need to panic … just prepare. Markets move, and staying informed is your best hedge!
5. “You’re not an economist.”
Hellll no, I’m not! I sold printers at Xerox and foreign exchange products to multinational firms before diving into real estate. But I track the signals that directly impact my clients’ buying power, financing decisions, and long-term financial outcomes. That’s why you’re here - because I connect the dots that matter to your bottom line, without the camel crap.
💡 What It Means for You
🔁 If You’re Renewing:
Don’t assume your next rate will be lower in the next 12-24 months
Shop around, consider early renewals, and review your options sooner rather than later. I’m having these conversations every week to help folks consider their options
🏡 If You’re Planning to Buy:
Mortgage rates may not drop anytime soon. But prices definitely could. Especially in certain markets and property types
A pre-approval or locking in a fixed-rate could make sense … even if you’re not buying tomorrow
🧠 Final Thought
No one has a crystal ball … but you don’t need one to see that the market has hit the summer slowdown. The key is staying informed, not reactive.
Whether you’re planning your next move or just trying to make sense of the numbers, I’m here to help you cut through the noise.
Book a time below, and let’s chat about your goals, your timing, and your market.
📥 PS - Want More Insights Like This?
Be sure to follow me on social or reply to this newsletter and let me know what you’d like me to cover next!
Stay cool out there.
With love,
Jordan Buttarazzi
