Over the past two weeks, bond yields have dropped more than 30 basis points (0.30%). Historically, this would lead to lower fixed mortgage rates since bond yields significantly influence their pricing. Yet, many lenders, including three of Canada’s Big 5 banks, have done the opposite—raising their fixed mortgage rates.
What’s Happening with Fixed Mortgage Rates?
CIBC, RBC, and TD Bank recently increased their 3-, 4-, and 5-year fixed rates by 15-35 basis points, with RBC also raising its 5-year variable rates by 10 basis points. These changes reflect a broader trend among lenders across the country, though some have reduced rates slightly in select products.
If Bond Yields Are Down, Why Are Rates Going Up?
The relationship between bond yields and mortgage rates is not always straightforward. Rate adjustments depend on multiple factors, including:
- Market conditions
- Economic outlook
- Domestic and global events
- Lenders’ profitability strategies
Dave Larock, a mortgage broker and rate expert, describes the current rate hikes as “counter-intuitive.” He attributes them to the recent increase in bond yields from October to late November. If yields stay low or drop further, we might see rates decrease again, but Larock cautions against certainty.
Rate expert Ryan Sims suggests the banks’ slow response to bond yield changes could reflect their strategic focus. With more borrowers opting for variable-rate mortgages, lenders may need to offer more competitive fixed-rate options to maintain balance in their portfolios.
The Big Banks’ Approach
Seasonality may also be at play. Ron Butler of Butler Mortgage notes that December often marks the end of aggressive mortgage marketing campaigns, leading to rate increases. This could signal a return to more rational pricing as the big banks prioritize long-term sustainability over short-term competitiveness.
Takeaway
While bond yields influence fixed mortgage rates, they are only one piece of the puzzle. Market strategy, seasonality, and broader economic factors all play a role. For borrowers, understanding these dynamics is crucial to making informed decisions.