All else being equal, this would have increased the financing costs for our businesses and households. However, all else is not equal. The stronger financial position of Canadian banks means that they now borrow at rates considerably lower than those of many of their international peers. In addition, the Bank of Canada has eased its overnight rate substantially since the onset of the crisis.
The initial rises in bond yields can be largely explained by the concerns raised by the scope and possible extent of the “private sector involvement” in Greece, which was set as a condition for a second programme at the euro area summit of 21 July.11 Some investors may find it rational to start shortening sovereign debt and others simply to reduce their exposures to countries in the currency union since market concerns about government debt sustainability can become self-fulfilling if not tackled.