Fixed mortgage rates have risen in recent days, despite hints of cuts from the Bank of Canada.

Financial market watchers say many Canadian banks are raising their proposed fixed mortgage rates, despite signs that a Bank of Canada rate cut is possible in the coming months.

Even though Canada’s central bank has opened the door to cutting rates by mid-year, economic data in the United States could be a spoiler for potential homebuyers eyeing the spring market.

Last Wednesday, the Bank of Canada kept its benchmark interest rate at 5.0% for the sixth time in a row amid signs that key inflation indicators were moving in the right direction.

Gov. Tiff Macklem told reporters last week that a June interest rate cut was in a “realm of possibilities” – a shift from previous reports when he said it was “too early” to talk about a rate cut.

The Bank of Canada’s key interest rate determines the prime rates at which Canadian banks set interest rates on their lending products, including variable or adjustable mortgages.

Changes in market sentiment about the path of rates can also influence interest rates on offer, as bond yields, which determine fixed rates, rise or fall depending on traders’ expectations for the policy rate.

Despite signs that the Bank of Canada’s tightening cycle has come to an end, bond yields have been rising in recent weeks.

Yields on five-year Government of Canada bonds – those that serve as the basis for five-year fixed mortgages – closed at 3.85 per cent yesterday. For comparison: the yield was 3.4% three months ago and 3.6% a month earlier.

This is pushing many banks to increase the fixed rates they offer.

Our special offer of five- or three-year fixed mortgages is still holding at 4.89 percent as of Wednesday.

Only a few banks are not raising rates yet, but they too may be forced to start moving higher later this week.

Last month, the US consumer price index was also higher than expected for the third month in a row. That, coupled with other signs that the US economy is holding up well under the burden of higher interest rates, pushes back the possibility of the US Federal Reserve starting to cut rates.

While Macklem has made clear that the Bank of Canada sets monetary policy based on Canadian trends rather than the timing of its U.S. counterparts, there are risks of diverging central bank rate paths.

If the Bank of Canada cuts rates faster and more frequently than the US Federal Reserve, the rate gap could hurt the Canadian dollar relative to its US counterpart.

The rise in fixed mortgage rates among banks comes as would-be home buyers and sellers try their hand at the usually buoyant spring housing market.

Canadians now largely expect a rate cut. This stimulates increased demand. And if this story changes, it can be assumed that many people who are currently in the real estate market will return to a wait-and-see attitude, as they did in the second half of last year.

We advise potential buyers to get a mortgage pre-approval as soon as possible to lock in rates at current levels and protect themselves from possible future increases in financing costs.