Earlier in 2019, it was predicted that we would see a rate drop from the Bank of Canada as late spring. Three scheduled rate announcements later and still no rate cut. Each time, the market has been closely watching in anticipation of a drop, however, the Bank of Canada remains reluctant to make any changes.
The market’s disappointment with the lack of movement from the Bank of Canada has been making itself apparent through bond yields. Since their decision to keep their rate unchanged last week, bond yields have started soaring. Fixed mortgage rates are determined by bond yields, so when bond yields increase, upward pressure is placed on fixed mortgage rates.
Prior to last week’s rate announcement, bond yields were at their lowest level since January 2017, at which time there were 5 year fixed rates as low as 2.34%. Very similar to today’s lowest 5 year fixed rate of 2.39%*.
The bond yields bottomed out on September 3rd. The day right before the rate announcement. As of yesterday, September 10th, the bond yields have spiked up 20.98%, placing serious upward pressure on fixed mortgage rates. The last time the bond yields were this high was early January 2019, at which time the lowest 5 year fixed rate was 3.49%. Over 1% higher than it is today.
Does this mean that we are going to see 5 year fixed rates soar back up over 1%?
The answer is NO. Not at all.
Earlier in the year, rates were kept artificially high by all mortgage lenders across the board. They could only keep that up for so long, however, which was what caused the precipitous drop of fixed mortgage rates that began in February, which sent them plummeting down more than 1% in less than six months.
That being said, fixed mortgage rates will almost certainly increase, and this increase could come as early as later today. It’s likely that we’ll see today’s lowest 2.39% rate go up to 2.49%… however it’s possible it could go up slightly higher than that.
I am not anticipating these increases to hold. As mentioned in previous blogs, there have been over 30 central banks around the world who have cut rates so far this year. The Bank of Canada is not yet one of them, however, they can only hold out for so long. They have been quite stubborn here. It’s only a matter of time before they will succumb. Any indication that they will be making a downward move will be enough to reverse the upward trend of the bond yields, therefore putting downward pressure on fixed mortgage rates once again.
The next scheduled rate announcement by the Bank of Canada is scheduled for October 30th. We’ll, of course, have to wait to see what happens.