Canadian Mortgage Rates May Resume Climb As Bond Yields Surge

Canadian real estate buyers have been motivated by falling mortgage rates, but that may change soon. Government of Canada (GoC) 5-year bond yields have been climbing sharply. The yield, which helps determine the cost of 5-year fixed rate mortgages, had been falling over the past few months, delivering relief to buyers. Over the course of just a few days, rising inflation expectations have sent bond yields soaring once again. 

Canada Has Seen Yields Fall & Lower Costs Over The Past Few Months

Cooling inflation and expectations of rate cuts have helped to trim bond yields significantly. The 5 Year Government bond yield had a peak market close of 4.41% back in the beginning of October. Shortly after it tumbled as low as 3.17% at the end of the year, more than a point in just a few short weeks. 

Consequently, it was believed mortgage rates had peaked. The 5-year fixed rate mortgage adjusted with a more than 1 point decline. Most economists don’t expect a higher overnight rate either, they’re forecasting cuts. At the start of the year, it seemed extremely unlikely that mortgage rates would move higher. A slightly different picture is emerging now. 

Government of Canada 5-Year Bond Yield

The Government of Canada (GoC) 5-year bond yield which helps to determine 5-year fixed rate mortgage costs. 

Source: TradingView. 

Canadian Mortgage Rates May Climb As Yields Surge

The GoC 5-Year bond yield has reversed course, rising significantly over a few days. This morning the rate opened at 3.5%, having added 0.23 points over the past week. Behind the reversal is a mild acceleration of inflation, demonstrating moderating CPI is easier said than done. 

What does this mean for mortgage rates? The rapid rise occurred over such a short period which means the 5-year fixed rate mortgage hasn’t had time to adjust. It’s not yet clear if this trend will stick around, but at the very least it’s likely to put a floor on falling rates in the near-term.