How High Will Bond Yields Go?

Now that monetary policy tightening has begun in Canada and the United States, the main question is: How much will interest rates rise? Their evolution will be heavily influenced by that of real rates, which currently remain extremely low. In this issue of Economic Viewpoint, we will address the issue of the neutral rate, which is where interest rates should be headed in the medium-term. If neutral rates seem to be lower than before the financial crisis, it look like that they are still at least at 2.50% in NorthAmerica, in nominal term. The gradual tightening of monetary policy should thus continue in the coming quarters, this should push bond yields higher.