Bond yields tick lower amid continuing tariff turmoil
The yield on Canada’s five-year government bond slid at the end of last week amid signs that the US economy is weakening and more gloomy news on the trade outlook, potentially putting downward pressure on fixed mortgage rates.
That yield, which serves as a benchmark for various lending products, closed at 2.941% on Friday, with markets closed on Monday. It has seen a 52-week range between 2.367% and 3.322%, according to MarketWatch data.
The decline followed a similar slide in US Treasury yields after labor market data showed the economy added fewer jobs than expected last month, strengthening the expectation that the Federal Reserve will lower interest rates in the months ahead.
The dip in bond yields also comes after the Bank of Canada (BoC) held its target for the overnight rate at 2.75% for the third consecutive time in July. This decision, widely anticipated by major Canadian banks, was made as the central bank grappled with a lack of clarity stemming from persistent underlying inflation and the economic impacts of a new trade environment, as stated in its July 30 press release:
“With still high uncertainty, the Canadian economy showing some resilience, and ongoing pressures on underlying inflation, Governing Council decided to hold the policy interest rate unchanged,” the central bank said in its accompanying statement on Wednesday.
“We will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs related to tariffs and the reconfiguration of trade.”
For many Canadians, this held rate has significant implications for the mortgage industry. A July 2025 analysis by the BoC found that roughly 60% of mortgage holders renewing in 2025 and 2026 could face higher monthly payments, with an average increase of 10% for those renewing this year compared to December 2024.
Borrowers with fixed-rate mortgages, especially those on a 5-year term, are projected to see the steepest jumps. Conversely, homeowners with variable-rate mortgages may see their payments decline by five to seven percent.
Market expectations are now focused on the BoC’s next scheduled rate announcement on September 17. Analysts from TD Economics and other firms anticipate that further rate cuts may be on the horizon, with some projecting a total reduction of 50 basis points by year-end if trade-related economic fallout becomes more evident.
Meanwhile, market watchers will be closely following developments on the trade front to see how bond yields – and by extension, fixed mortgage rates – could be impacted in the weeks ahead.
Source CMP
By Jonalyn Cueto
