Canadian Government Bond Yields and Mortgage Rates on the Rise

The interest rates on Canadian government bonds, which influence fixed mortgage rates, have gone up by more than 0.30%.

After dropping over the past two months, these bond rates are climbing again.

Why Are Bond Rates Increasing?

Earlier, lower inflation rates in Canada and the U.S. helped bring bond rates down. But now, several factors are causing them to rise again, say experts. Thierry Wizman, a global strategist, mentioned that changes in government policies on spending, tariffs, and immigration are contributing to this.

Additionally, comments from Jerome Powell, the head of the U.S. Federal Reserve, hinted that interest rates might stay high for a longer period. Even though he is pleased with the progress on inflation over the past year, Powell wants to see more improvement before considering lowering rates. "We need to be more certain that inflation is getting close to 2% before we start reducing rates," he said.

Impact on Fixed Mortgage Rates

According to Ryan Sims, a rate expert at CMT, "Rate cuts will likely stop, but if bond yields hit 3.60% and stay there, non-insurable mortgage rates will go up a bit. Also, the heavily discounted 5-year insured mortgage rates would disappear, though the 4.89% fixed rate might still be available for insured loans."

What Could Make Bond Yields and Mortgage Rates Fall Again?

"Inflation would need to drop significantly for rates to go down," says Sims. "Each month that inflation is higher than expected, bond yields go up."

For now, it might take a while for inflation to get close to the 2% target set by the Bank of Canada. In May, Canada's overall inflation rate went up to 2.9%, from 2.7% in April.

 

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