Surging bond yields send fixed mortgage rates higher
Canada’s five-year government bond yield jumped this week, pushing fixed mortgage rates upwards as investor fears about swelling US debt spilled over into global bond markets.
That five-year yield, a key benchmark for fixed rates, rose by nearly 20 basis points between Tuesday and early Friday morning, sitting just below 3% before 8:00 a.m. ET. Lenders upped their own lowest fixed rates in response – and further hikes could be on the way if economic uncertainty continues to mount.
In the US, 10- and 30-year bond yields shot upwards after the House of Representatives passed President Trump’s so-called Big Beautiful Bill, a measure the non-partisan Congressional Budget Office said could add around $2.3 trillion to the already huge national budget deficit over the next decade.
That sparked global jitters about the debt outlook for the world’s largest economy, which also saw Moody’s downgrade the US credit rating last week.
Canada is facing an uncertain economic future as a punishing trade war with the US continues to weigh against economic growth, threaten jobs across the country, and risk pushing inflation higher.
While the overall consumer price index (CPI) slowed to 1.7% in April, that figure was skewed by the end of the consumer carbon price last month – and inflation excluding energy costs rose to 2.9%, a potential cause for alarm for the Bank of Canada as it weighs up whether to cut interest rates in the months ahead.
Canada is on track to enter a recession with a further 100,000 jobs possibly on the chopping block, according to TD chief economist Beata Caranci, another factor lowering investor confidence in the national economic outlook.
Where are Canadian mortgage rates headed next?
If the central bank decides to keep rate cuts on pause over the summer, that’ll see no change in variable mortgage rates for the coming months – and an unsteady bond market is also leaving little clarity over the likely direction of fixed rates.
A jump in the five-year government yield past 3% could push lenders to hike fixed rates again, according to RATESDOTCA mortgage and real estate expert Victor Tran, although he said they’ll probably wait until the Bank of Canada’s next announcement (scheduled for June 4) before making a decision.
A chill has also descended on Canada’s national housing market amid that economic volatility. In April, home sales across the country fell by nearly 10% compared with the same time last year as the number of listed properties continued to rise, especially in Ontario and British Columbia.
Source CMP
By Fergal McAlinden
