Global bond yields are rising and it’s going to push the cost of financing a mortgage a lot higher. The Government of Canada (GoC) 5-year bond yields pushed higher again yesterday. Earlier this week, we mentioned lenders are considering reversing recent mortgage rate cuts. Now we have our first to actually execute — TD. More lenders are expected to raise rates by early next week, as the cost of financing them rises.
Canadian Bond Yields Are Surging Higher
Global bond yields are surging higher and Canada is definitely seeing this trend. The GoC 5-year bond reached 1.11% yesterday, about 30 basis points (bps) higher than a month before. Yields for this segment of credit have increased 75 bps since the beginning of this year. This is a significant jump that’s going to drive mortgage rates higher.
Government of Canada 5-Year Bond Yield
The percent yield of the Government of Canada’s 5-year bond.
Source: Bank of Canada; Better Dwelling.
Rising Bond Yields Mean Higher Mortgage Rates
Since this impacts all lending, the rise is expected to push 5-year mortgage rates higher soon. Expect about 30 bps to be passed onto consumers by early next week, if not by the end of today. This increase would cost a consumer about $11,210 more in interest over the 5-year term. Not the end of the world, but not chump change either. It’s almost a quarter of a year of net income at the median wage.
TD Was The First To Cut Mortgage Rates, and Now They’re The First To Raise Them
Earlier this week, we said lenders were scrambling to reverse their recent cuts. TD was the first Big Five to cut its 5-year fixed-rate mortgage rate to 1.99% about two weeks ago. Now they’re the first to reverse cuts, hiking the rate by 30 bps to 2.29% yesterday. If one of the biggest lenders was forced to hike rates a few days after cutting, you can expect others to follow.
Mortgage rates are still low and expected to be relatively low for a while — just not this low. Rising 5-year bond rates only impact 5-year fixed rates directly. This can drive more people to cheaper variable-rate mortgages in the near term. Those move based on the overnight rate, which isn’t expected to rise until the second half of next year. Although some experts see persistent and high inflation forcing a rate hike in the first half.
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