Bond yields are soaring to multi-decade highs. What does that mean for Canadian consumers?

For the average Canadian, it means higher borrowing costs for some products, such as mortgages and auto loans, but also stronger returns on other products, such as other guaranteed investment certificates (GICs) and money market funds.

Let's start with the basics. When you buy a bond, you're effectively lending money for a predetermined amount of time to the issuer. That could be the federal government, provinces, municipalities or a private company. Investors are typically paid interest until the maturity date, when they get the face value of the bond back.

So, what's a bond yield? It's the annual return an investor earns from holding a bond, expressed as a percentage. After bonds are issued, they can be traded on the open market, causing their prices to shift. When bond prices drop, yields rise. This is because investors get the same interest payments for a lower buy-in price.