Fixed mortgage rates are going up again pushed by increase in Government of Canada’s bond yields
Global bond market is facing yield gains in October, and Canada is not an exception.
This week, we’ve seen the Government of Canada’s (GOC) five-year bond yield going up again. The yield rose from 0.85% reported at the end of September to 1.37%. Such a gain adds to an already impressive rise of more than 0.80% from the beginning of 2021. The gain was expected to force banks into raising their fixed mortgage rates (just a few weeks after they cut them), and two major Canadian banks have already started acting.
TD bank was the first one to raise its fixed term mortgage rates by 0.30% last week, after having reduced them only two weeks prior. CIBC followed the example and raised its rates by 0.20%. All the other big banks and smaller lenders will most likely do the same, as they pass growing lending costs on to consumers. In case the yields keep going up, mortgage rates will also grow.
As you know, in the middle of September, the major banks started slashing their mortgage rates expecting a continuing low yield trend on government bonds. Today, as the cost of funding debt is growing, they are raising their rates again. Fortunately, mortgage rates are still expected to remain relatively low during the next few months and into 2022. However, as the past month shows, no one can tell for sure.
Although most other GOC bond yields are also going up, the five-year bond yield is of particular attention, as it indicates the direction of mortgage rate changes. It affects a fixed rate five-year mortgage directly. An increase of this particular yield could force more consumers switch from such mortgages to cheaper variable-rate mortgages that depend on the overnight rate. The latter is expected to remain unchanged until the middle of 2022.
If you on the market to buy a property or have your mortgage up for the renewal within the next several months, please contact your mortgage broker or bank and reserve your rate sooner then later.