I notice that the province of Ontario is out with a new offer of a 10 year bond that pays 2.25%. That’s not exactly exciting or attractive. $1000 compounded at 2.25% grows to $1280 in ten years. But with inflation that might well purchase less (possibly significantly less than $1000 purchases today.). This issue was still “open” as I write this which is an hour after TD emailed to advertise this new offer. I suppose an hour is not long but it does suggest the issue did not immediately sell out.
In May and June I posted several times about provincial bond issues. On May 25, I commented about a 2.15% ten year issue from Ontario and a 2.1% nine year issue from Nova Scotia. On May 18, I commented in detail ona ten year Quebec issue at 2.2%.
My point today, is that interest rates have not risen all that much since June. Looking at the yield on the 5 year Canada bond… It’s at 1.37%. That’s compares to about 0.90% in June. It’s significantly higher than the ultra low of 0.4% that it was at for most of 2020. So this rate is higher than it was in June but it’s not exactly higher. It’s certainly lower than inflation and therefore the “real” return investing in this bond is negative. Looking at the yield on the U.S. 10 year treasury…. At 1.51% it’s actually lower than June which was around 1.60%. It seems fair to say that the U.S. bond market is not reacting to either higher inflation or the FED’s tapering of bond buying. The danger for investors is that both stock and certainly bond values (existing bonds) would drop if the market does start to react to those two things.