History Shows: Expect Unexpected Rate Detours

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Canada's closely-watched 5-year bond yield is suddenly 38 bps higher year-to-date. That's swung bond market sentiment from partly sunny to cloudy in a hurry.

It makes this an opportune moment to dust off an old cliche: rates don't drop in a straight line. We've got to brace for intermittent zig-zags, the only normal in downtrends.

Of course, we hear this all the time. It's more instructive to actually see it.

On that note, you'll find charts below of all five BoC rate cut cycles this millennium. The arrows point to bond selloffs (yield rallies) in an overall downtrend. The terminus is the same in each case—rate cuts—but as you'll see, yields take many temporary detours along the way.

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