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Canada’s 5-Year Bond Rate Surpasses 4%: Implications for Fixed Rate Mortgages


Canada’s 5-year bond rate has surged above the 4% mark, triggering a wave of interest rate changes in the mortgage market. This sudden increase in bond yields has paved the way for a fresh round of fixed mortgage rate hikes, leaving homeowners and potential buyers grappling with the effects. Here we will discuss the Canada 5-year bond rate surpassing 4% and how it is reshaping the landscape of fixed-rate mortgages.

Bond Yields Break Through Key Resistance Point

Calgary Mortgage Rates and Canada 5 Year Bond Yield 2023

The recent surge in bond yields is a result of several interconnected factors. The release of higher-than-expected headline inflation figures in July played a significant role in pushing yields higher. This inflationary pressure sparked concerns within the market, prompting a reevaluation of interest rates. Additionally, the debt troubles in China contributed to the growing unease, influencing investors to reposition their portfolios. The culmination of these factors led to bond yields breaking through a crucial resistance point, triggering a cascade of consequences.

Fixed Mortgage Rates Respond to Yield Uptick

As bond yields surged, fixed mortgage rates have continued their upward trend based on multi-decade highs in Canada bond yields. Lenders, including banking giants like RBC and CIBC, steadily raised their mortgage rates in response to the upward trend in bond yields.

5- Year fixed rates are coming in above 5.49% with most lenders now.Two months ago, this average rate stood closer to 5.0%. In May, we had rates below 4.5%! This highlights the speed at which the mortgage market has been affected by the bond yield surge.

Impact on Borrowers and Prospective Buyers

The rise in fixed mortgage rates is reverberating through various segments of the population. For borrowers with imminent mortgage renewals, the current rate situation is disheartening. It may soon be that every rate will be either in the 6% range, with some terms in the low 7% range. This represents a significant leap for those accustomed to rates in the 3% range, effectively doubling their mortgage interest burden.

Furthermore, prospective homebuyers are not immune to the consequences. The elevated rates for both fixed and variable-rate mortgages, driven by the Bank of Canada’s rate hikes, are leading many buyers to reconsider their plans. The growth in new mortgages has stalled, with residential mortgage credit outstanding experiencing a mere 0.17% increase in May, the lowest monthly growth since 2011. This trend is mirrored in the Canadian Real Estate Association’s July report, indicating a slowdown in resale activity. The uncertainty surrounding interest rates is prompting potential buyers to remain on the sidelines until a higher level of certainty is achieved.

Bank of Canada’s Role and Market Forecast

The Bank of Canada’s actions have played a pivotal role in the unfolding scenario. Despite the surge in bond yields and the associated inflation concerns, the market’s confidence in the central bank’s next steps has wavered. While the hotter-than-expected inflation figures have kept the possibility of an additional rate hike on the table for the upcoming September 6 meeting, market odds of such an increase have diminished to 30 – 35%.

The Canada 5-year bond rate’s breach of the 4% threshold has set off a chain reaction in the fixed mortgage market. The increase in bond yields, driven by inflation fears and external economic factors, has led to a round of fixed mortgage rate hikes. Borrowers facing renewals are confronted with substantially higher rates, while prospective buyers are adopting a cautious approach. The uncertainty stemming from interest rate fluctuations is reshaping the mortgage landscape and contributing to a slowdown in the real estate market. As stakeholders closely monitor the situation, the Bank of Canada’s forthcoming decisions will undoubtedly play a critical role in shaping the future trajectory of mortgage rates and the housing market as a whole.



Josh Tagg has been the owner of Mortgages For Less since 2006. During that time Josh has developed a reputation for being an industry leader and advocate for client education.


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