The Government of Canada 5-year bond yield is one of the most significant financial benchmarks in the Canadian economy, particularly for mortgage borrowers and investors. As of May 19, 2025, the 5-year bond yield stands at 2.777%, reflecting the current state of the Canadian economy and investor sentiment toward medium-term government securities. As a government-backed security, it’s considered essentially risk-free, making it the foundation upon which other interest rates are built.
This article will explain the 5-year bond yield in Canada, how it’s determined, why it matters, and, most importantly, how it affects your mortgage decisions.
Latest Data of Canada 5-Year Bond Yield
Recent data shows a relatively stable pattern with mild fluctuations:
| Date | 5-Year BoC Yield |
|---|---|
| May 16, 2025 | 2.78 |
| May 15, 2025 | 2.76 |
| May 14, 2025 | 2.84 |
| May 9, 2025 | 2.75 |
| May 8, 2025 | 2.81 |
| May 5, 2025 | 2.77 |
| May 2, 2025 | 2.77 |
| May 1, 2025 | 2.70 |
| April 30, 2025 | 2.67 |
| April 25, 2025 | 2.78 |
| April 24, 2025 | 2.79 |
| April 21, 2025 | 2.79 |
| April 17, 2025 | 2.73 |
| April 16, 2025 | 2.70 |
Future Projections on 5-Year Yields
The projection for the 5-year Canadian bond yield sees it averaging 2.6% by the end of 2025, drifting modestly lower from current levels. Uncertainties exist, however, as shifting inflation expectations, monetary policy adjustments, and economic conditions could alter the path.
Source: Selected bond yields, Bank of Canada
What is the Canada 5-Year Bond Yield?
The 5-year Government of Canada bond yield represents the annual return or interest rate an investor receives by holding 5-year Canadian government debt securities until they mature in 5 years. It is the yield or interest rate earned on 5-year benchmark bonds.
The Canada 5-year bond yield is a benchmark for longer-term Canadian borrowing costs and investment returns, providing insight into the country’s overall economic health and growth expectations. The 5-year bond yield also strongly influences mortgage rates and investment portfolio decisions.
The 5-year Government of Canada bond is considered among the safest investments in the Canadian market. These bonds are backed by the Canadian government, which has a strong history of meeting its financial obligations.
Because it carries no risk of default and is highly liquid (easily bought and sold on secondary markets), the 5-year Canadian bond is used to determine interest rates on other longer-term investments (GICs) and provides a baseline for 5-year returns that investors can expect in the Canadian market.
How is the 5-Year Bond Yield Set?
The Government of Canada issues new benchmark bonds at regularly scheduled auctions, typically each month. Primary dealers, including Canada’s largest banks and financial institutions, bid on the price they are willing to pay for a new bond issuance, given its preset coupon or interest rate.
For example, if the government issues a new 5-year bond with a coupon of 3%, primary dealers will competitively bid on the price they want to pay for that bond. The higher the price they bid, the lower the yield on that bond issuance will be.
While the government sets the coupon, the market ultimately determines the prices and yields of bonds through daily trading activity in secondary markets after issuance. Higher demand for a bond pushes prices up and yields down, while lower demand, conversely, pushes prices down and yields up as returns must increase to attract buyers.
How Do 5-Year Bond Yields Affect Mortgage Rates?
5-year fixed mortgage rates are directly influenced by 5-year Government of Canada bond yields. This is because the 5-year fixed mortgage term matches the maturity of the 5-year benchmark bond that serves as a gauge of risk-free interest rates over that identical time horizon. Like bonds, mortgage rates account for expectations of where interest rates are headed over the next 5 years.
While linked to the 5-year bond yield, mortgage rates are typically 1-2% higher than prevailing bond yields. This interest rate spread compensates lenders for the additional risks involved with mortgage loans, like default and prepayment risk, that government bonds do not carry. It also covers lenders’ administrative costs for underwriting and funding mortgages on top of bond yields.
Looking at a historical example, when the 5-year Government of Canada bond yield fell to 1.6% in March 2022, 5-year fixed mortgage rates were priced in the 2.6% to 3.6% range. With today’s bond yield at 2.777%, 5-year fixed mortgage rates average between 3.7% and 5%.
Do 5-Year Bond Yields Impact Variable Mortgage Rates?
Variable-rate mortgages are indirectly influenced by the 5-year Government of Canada bond yield. This is because variable-rate terms are directly priced based on the prime rate, which commercial banks set by adding a typical 2-3% margin above the Bank of Canada’s overnight interest rate.
Since the overnight rate is targeted by the central bank and reactive to current economic conditions, variable mortgage rates are more responsive to short-term rate adjustments made by the Bank of Canada, not longer-term yields.
However, longer-term bond yields reflect market expectations for future interest rate changes. So, if 5-year yields surge, it can signal rising rate hike expectations that may eventually filter into coming increases to the overnight rate, which affects variable-rate mortgages.
Term Premium in Bond Yields Explained
The term premium refers to how much extra compensation investors demand to hold longer-term bonds versus short-term bonds. It explains why longer maturity bond yields tend to exceed short-term yields under regular economic conditions.
This term premium exists because longer bonds carry higher interest rate risk. With short-term bonds, investors are locking in yields for only a minimal period before the bond matures and they can reinvest at new prevailing rates. With 5-year or 10-year bonds, investors face uncertainty whether they may need to sell prior to maturity and incur losses if rates rise significantly in the interim.
The term premium compensates investors for locking up their money for longer, forfeiting the flexibility of rolling short-term bonds, and taking on higher interest rate risk over the full bond lifespan.
Should I Lock Into a Fixed Mortgage Rate Based on Today’s Bond Yields?
Consider locking in fixed rates if
- Mortgage rates have been at historical lows and are trending upwards as bond yields rise.
- You value rate and payment stability, and are comfortable paying a slightly higher fixed payment if rates increase in the coming years
- Economic forecasts predict that 5-year bond yields are likely to rise further.
Variable may be better if
- You want flexibility to make larger lump payments to pay your mortgage down faster.
- You expect 5-year yields to decline, which may lower the variable mortgage rates.
- You are comfortable with fluctuating payments and can adapt to higher payments if rates increase.
Choosing between variable and fixed depends on your risk tolerance, outlook for yields and rates, and individual financial situation. Consult a mortgage professional to assess your options.
FAQs about 5 Year Bond Yield Canada
What is an Inverted Yield Curve?
An inverted yield curve refers to an abnormal situation where short-term bond yields exceed longer-term bond yields. Under regular conditions, investors demand higher yields for locking their money up in longer-term bonds versus short-term bonds, so yield curves normally slope upward with longer maturities having higher yields. Inverted curves signal that investors expect short-term rates to fall in the future and are willing to lock in higher yields now for only a short period.
Why is there a spread between mortgage rates and bond yields?
The interest rate spread of ~1-2% compensates lenders for the risks inherent with mortgage loans that government bonds don't face, such as defaults, delayed payments, and borrowers paying off mortgages early. It also covers lenders' administrative and funding costs to provide mortgages.
How can I easily track changes in the key 5-year bond yield benchmark?
The Bank of Canada website publishes updated 5-year bond yield data daily. Financial news sites like Bloomberg and BNN Bloomberg also report frequently on the latest Canadian bond yields. Most major bank sites also provide charts tracking bond yields over time.
How does Canada's 5-year bond yield compare to other countries?
It tends to track closely with the U.S. 5-year Treasury yield given the integrated Canada-U.S. economy and markets. Canada's yield is often slightly above U.S. Treasurys due to greater risks. Both are significantly higher than Japanese and European sovereign debt, which carry negative yields currently.
If the yield curve inverts, should I avoid a variable rate mortgage?
While an inverted curve signals higher recession odds ahead, the timing is uncertain. Focus instead on your personal factors like cashflow, job security, rate outlook and risk tolerance when weighing fixed or variable. Some borrowers opt for split mortgages, with part fixed and part variable.
The Bottom Line
Understanding the drivers that cause yields to fluctuate and the relationships between yields, interest rates, and the economy empowers borrowers and investors to make informed financial decisions. With expectations that yields will remain relatively low but volatile in the coming years, following yield movements and guidance from mortgage professionals can help Canadians make smart choices in managing mortgage debt and investment strategies.
