If you’ve been watching the headlines… you’ve seen it. The war in Iran is escalating… and markets don’t wait around to “see how it goes.” 

In the wake of the US/Israeli strikes on Iran, bond yields wasted no time in reacting with large, upward spikes early this week. And when bond yields rise sharply… fixed rates may not be too far behind. 

The question is… will the war drive fixed mortgage rates higher?  

 

What’s Happening Right Now (and why markets care) 

The conflict isn’t just a scary headline… it’s a real-time uncertainty event. 

The war in Iran is doing two things to markets at the same time: 

  1. It’s cranking up global uncertainty (risk goes up… and investors reposition fast). 
  1. It’s pushing oil prices higher because traders start pricing in “what if supply gets disrupted?” 

And that oil piece matters more than people think. 

 

How is the Price of Oil Related to Mortgage Rates?  

The conflict in Iran creates a disruption to oil supply. The threat to the supply of oil pushes its price higher, which leads to inflation fears. Bond traders react by selling off bonds, which in turn, pushes yields up.  

Iran conflict → oil prices rise→ inflation fears → bonds sold → yields up 

Here’s the chain reaction in plain English: 

  • Fear of oil supply disruptions shows up first. Whether it’s production risk, shipping risk, or regional escalation… oil markets hate uncertainty. 
  • That fear can push oil prices up. 
  • Higher oil feeds into the cost of moving goods, heating homes, running businesses… basically everything. So markets start thinking, “Great… inflation again.” 
  • When inflation expectations rise, investors often sell bonds (because fixed bond payments look less attractive when inflation is hotter). 
  • When bonds get sold, bond prices drop and yields rise. 

That’s why this week was so jumpy. 

Bond yields spiked on Monday and Tuesday this week because geopolitical risk ramped up fast… and markets repriced the odds of higher inflation (via oil) and more volatility in general. 

It wasn’t a slow, gentle move. It was a “risk got repriced in real-time” move. This can result in a large spike in yields, which is exactly what we saw.  

 

Why Bond Yields are Rising Despite Cooling Inflation  

Another key piece is inflation, which is cooling as indicated in Statistics Canada’s inflation update released on February 17th, 2026: 

  • Inflation cooled to 2.29% in January, year over year. This was down from 2.4% in December and beat expectations.  
  • Shelter-cost inflation slowed to 1.7%, the first time it’s been under 2% in annual growth in five years. 

 

You don’t need me to tell you that falling inflation is a good sign. Long-term, it supports the idea that inflation pressure is easing… and that gives the Bank of Canada more room to potentially drop rates later this year. While some are forecasting another cut later this year, odds are still against it. But that can always change.  

 

Geopolitics Can Overpower the “Good News” of Lower Inflation (at least in the short term) 

So why are fixed rates still at risk of pushing higher? 

Because CPI inflation is the slow-moving story… but war is the sudden shock. And markets can react abruptly to shock.  

Even with cooling inflation, the immediate Iran-driven uncertainty is what’s currently moving bond yields. And since the yields are what many lenders use to price fixed mortgages, a quick jump in yields will get the attention of mortgage lenders, which can lead to them hiking their fixed mortgage rates.  

No guarantees, obviously. But if yields stay elevated, lenders usually protect their margins. Translation: the “specials” disappear first. 

 

How Does That Turn into Higher Fixed Rates? 

To keep it simple: 

  • Bond yields up → lenders’ cost of funds up 
  • Cost of funds up → fixed mortgage rates get repriced higher 
  • And the repricing can be quick (because lenders watch yields constantly) 

That’s why this kind of week matters. 

Below is the 5-year Government of Canada bond yield chart showing the last three months:  

Source: investing.com 

As I’ve indicated on the chart, the yields start to fall rather quickly on February 8th, which led to many mortgage lenders lowering their rates. Bond yields then react with an upward spike directly related to the start of the conflict in Iran.  

At time of writing, Wednesday morning, March 4th, bond yields are only up marginally. One of the lowest rate lenders have already reacted with increases to their 3 and 5 year fixed transfer rates. That is, the rates they offer to clients transferring their mortgage to them at time of renewal. However, if the yields continue to climb, then fixed mortgage rate increases across the board will be imminent.  

 

What Should You Do if You’re Rate-Sensitive? 

Even the near future is riddled with uncertainty and it’s too soon to tell if this is simply a market overreaction that will soon correct itself. Or if the yields will continue to rise. Literally anything can happen here.  

Here’s the no-nonsense playbook on how to protect yourself against potentially rising rates: 

  • If you’re within 120 days of your mortgage renewal… grab a rate hold. It’s basically insurance against more spikes. 
  • If you have a purchase closing within 120 days… don’t assume today’s quote is still there next week. Lock it in and keep options open. 
  • If you’re refinancing your mortgage to kill high-interest debt, take out equity, or simply to lower your mortgage payment… don’t wait for “perfect timing.” In choppy markets, perfect timing is usually a myth. 

But what if rates start to fall?  

This is always a possibility. We all want the lowest mortgage rate, which can result in some people waiting to lock in a rate. But locking in a rate now doesn’t mean that you’re obligated to take that rate. If rates fall, then we can get your rate lowered for you, sometimes right up until a few days before your closing/renewal date. If another lender comes out with a lower rate, we can move your mortgage over to the new lender. This is something we’re always monitoring for our clients. If it looks like the time is right to make a move, we’ll reach out to you to let you know there are better options available.  

 

Frequently Asked Questions (FAQ) 

Why does a conflict in the Middle East affect my mortgage rate in Canada? 
It comes down to the “global ripple effect.” Conflict in oil-producing regions like Iran creates fear of supply disruptions. This pushes oil prices higher, which fuels inflation concerns globally. When inflation fears rise, bond traders sell off bonds, causing yields to spike. Since fixed mortgage rates are priced based on these yields, your local rate can move because of events halfway across the world. 

Will fixed mortgage rates go up immediately? 
Not necessarily instantly, but lenders move fast. Lenders monitor bond yields daily. If yields sustain a high spike for more than a few days, mortgage providers typically pull their “special” rates or announce hikes to protect their margins. 

How do oil prices specifically impact inflation? 
Oil is a “cost of everything” commodity. When it gets more expensive, it costs more to transport goods, heat buildings, and manufacture products. This “input cost” rise is a major driver of CPI (Consumer Price Index) inflation, which is exactly what the Bank of Canada and bond markets watch closely. 

Should I lock in my rate now or wait for inflation to cool further? 
While inflation is technically cooling (sitting at 2.3%), geopolitical shocks are unpredictable and can overpower slow-moving economic data in the short term. If you are within 120 days of a renewal or purchase, locking in a rate hold is a “win-win”—it protects you if rates jump, but you can usually still capture a lower rate if they happen to drop before you close. 

 

Final Thoughts 

Cooling CPI is a great of course. Inflation cooled to 2.3% and shelter-cost inflation slowed to 1.7%… and that’s the kind of trend the Bank of Canada wants to see over time. 

But markets don’t live “over time”… they live right now. And right now, the Iran conflict is creating an oil-and-uncertainty shock that immediately pushed bond yields higher. If the yields continue to rise, then it won’t be long before fixed mortgage rates follow suit. . 

If you want help on building a simple plan, fixed vs variable, short-term vs 5-year, or just “what would my payment be if rates move up another 0.25%?”, then reach out to us and we’ll give you the expert, quality, and unbiased advice you’re looking for.