Is the period of ultra low fixed rates in Canada already over?

Over the last week the bond market has shifted sharply higher and currently 5 years bond yield breaks 1.1%. Does it mean that ultra low fixed rates soon be a sign of the past?

Let’s get back to what 5-year Government of Canada bond yield means. It represents the income an investor receives for keeping 5-year Canadian debt to its maturity.

As government bonds are backed fully by the Canadian government, the 5-year Canadian bond is considered the safest investment option with a 5-year term. Due to the fact that it’s risk-free and has high liquidity, it’s often used to determine other interest rates in the country.

Fixed mortgage rates are affected by the Government of Canada bond yields. The 5-year fixed term changes in accordance with the 5-year bond yield. Although it may change a direction for some time, the difference between 5-year yields and 5-year fixed rates always returns to its long-term average.

Our best advertised five-year fixed mortgage rate went up several times over the course of last 2 days, but we still have couple lenders holding at 1.99%. Looks like rates will settle at 2.2% point for a little while, unless we see a steady trend of bond yields coming down.

Lenders started raising their fixed mortgage rates last week, which was expected due to a significant increase in the long-term bond yields.

We will see ups and downs for bond yields and 5 years fixed rates amid Canada’s uneven economic recovery, but the latest hike could mark the beginning of the end for ultra-low fixed mortgage rates for this economic cycle.