In last week’s blog, I warned that the crisis in Iran could push fixed rates higher… this week, it’s happening. On paper, the economy is doing the thing that normally brings rates down… not up.  

Yet here we are. 

We were finally seeing some of the lowest fixed rates since mid-2022. Bond yields were sliding and fixed mortgage rates were coming down with them. Then, the conflict in Iran broke out, and the narrative shifted overnight. 

 

The “Master Resource” Paradox 

While war often drives investors toward the safety of bonds (which would result in lower yields), this conflict is different. The war itself is not what’s moving bond yields higher. It’s the economic consequences of the war. Particularly, the war’s impact on the oil supply. Rising oil prices means rising gas prices.  

This goes far beyond what we pay to fill up the tanks of our cars. It fuels inflation everywhere. This is because energy is a master resource, because almost every product requires physical transport, which in turn pushes up the price of virtually all goods sold. 

 

The Deficit Factor 

But the price of oil is only one part of the puzzle. There are also mounting concerns around the impact of excessive spending by the US government to fund the war, further driving up their deficit. This is pushing bond investors to sell. In the bond market, prices and yields move in opposite directions. When bonds are sold off, yields rise, which then pushes fixed mortgage rates higher. 

 

Yields Rise Despite Weakening Economic Conditions 

What makes the current environment so unusual is that yields are climbing even as traditional economic indicators “scream” for lower rates. Typically, weak data leads to lower yields.  

Consider the recent data we’ve seen: 

  • Stagnant Growth: Canada’s GDP contracted by 0.60% (annualized) in Q4 2025. Total growth for 2025 was just 1.7%… the slowest since 2020, according to Statistics Canada. 
  • Cooling Inflation: Canada’s CPI cooled to 2.30% in January. More importantly, the Bank of Canada’s preferred “trim and median” metrics are now tracking well below the 2.00% target over the last 90 days. 

These are all events that would normally push bond yields lower, which would then put downward pressure on fixed rates. Not to mention, it would generally open the door to another potential rate cut from the Bank of Canada. However, the war in Iran overpowers them all and bond yields continue to rise. 

 

Why Geopolitics is “Winning” Right Now 

In last week’s blog, I talked about the chain reaction: 

Middle East conflict → oil price risk → inflation fears → bond yields rising → fixed mortgage rates rising. 

That inflation fear is the loudest voice in the room right now… louder than weak GDP, louder than job losses, louder than a cooler CPI print. 

And markets don’t wait for inflation to show up in your grocery bill before they react. They price the risk ahead of time. If investors think the price of oil stays elevated (or gets worse), they sell off bonds which pushes the yields higher… which then leads to higher fixed mortgage rates for the rest of us. 

 

What This Means for Mortgage Rates 

We are already seeing the impact, with most lenders increasing their fixed rates over the last few days. The lowest 5-year fixed rate for high-ratio (insured) purchases has just jumped from 3.59% up to 3.74%, effective this morning. 

While some lenders are holding steady for the moment, it is likely a matter of time before they follow suit. 

With the Bank of Canada and the US Fed both meeting on March 18th, market odds for a rate cut have plummeted to near zero (7% for the BoC and 1% for the Fed). 

 

Frequently Asked Questions 

Why are mortgage rates rising if the economy is slowing? 

Because right now the bond market isn’t trading the “jobs and GDP” story… it’s trading inflation risk. Oil fear = inflation fear. And inflation fear makes investors dump bonds… which pushes yields up… which pushes fixed mortgage rates up. Weird? Yes. Real? Also yes. 

Will oil prices keep pushing rates up? 

They can… especially if supply risk sticks around and markets believe higher energy costs are going to spill into everything else. Bonds react to expectations, not just today’s price at the pump… so even the fear of sustained oil inflation can keep yields elevated. 

Is now a bad time to renew my mortgage? 

Not at all. In fact, it’s one of the best times as rates are still comparatively low. But it is a bad time to procrastinate. If your renewal is inside the next 120 days, you want options… and you want leverage. Getting a plan in place early lets you lock something in, keep flexibility, and avoid getting cornered if fixed rates keep creeping higher. 

 

Final Thoughts 

Last week we warned the Iran crisis could push fixed rates higher… this week we’re seeing it happen. And the frustrating part is the economic data is pointing to lower mortgage rates… jobs are weakening, GDP is shrinking, CPI is cooling… yet geopolitics (and oil-driven inflation fear) is still winning the battle for bond yields. 

If you’ve got a purchase, refinance, or renewal coming up in the next 120 days, don’t wait to see what’s going to happen next, as all signs are pointing to fixed rates rising further. Sure, the situation could reverse itself… but I certainly wouldn’t count on it as waiting could prove to be an expensive gamble. At PMT, we’ll help you build a clear plan, lock in a rate, and make sure you beat the bank with the lowest rate possible. If you have a purchase closing or mortgage renewal within the next 120 days, reach out to us today to lock in a rate.