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Back in June, the sky was the limit for GIC investors enjoying the rare thrill of surging interest rates.

The five-year Government of Canada bond yield rose to about 3.6 per cent, prompting online bank Oaken Financial to announce what appeared to be the first 5-per-cent rate on a five-year GIC in decades. As of midweek, 10 others had joined Oaken in offering 5 to 5.1 per cent for five years.

How much longer these rates last is uncertain. Already, EQ Bank has dropped its rate on five-year GICs to 4.65 per cent.

Bond yields, a big influence on GIC rates, hit a wall in mid-June after a sharp rise that began in January. The yield on five-year Government of Canada bonds dipped as low as 2.7 per cent or so a couple of weeks ago, then crept up to 3 per cent late in the week.

Without a further increase in bond yields, we could easily see more GIC issuers trim their five-year rates back below 5 per cent. The reason this isn’t happening already is that alternative banks with the best GIC rates remain eager to attract money they can turn into mortgage lending. Here, we have a sign that despair does not rule in housing. Lenders are still lending.

The reason bond yields are falling is a growing sense that we’ve seen the worst of inflation, so central banks may not have to raise interest rates quite as much as expected. Inflation is still way too high, but Statistics Canada reported this week that the year-over-year rise in the cost of living in July fell to 7.6 per cent from 8.1 per cent in June.

You’ve seen how volatile things can be in the economy and financial markets in the past couple of years. There’s zero certainty about anything, including the progress against inflation. Still, it does seem that the big surges in inflation and bond yields have peaked. If so, 5-per-cent GICs may not last too much longer. Snooze on them and you may lose.

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