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Bond Yields Down! Will Fixed Rates Follow?
- Paul Meredith
- Aug 6
- 4 min read
After reaching their lowest point in 3 years back in April, bond yields climbed by roughly 32% by mid-July. This resulted in multiple hikes to fixed rates over that period, with some lenders increasing by as much as 0.40%. Fortunately, bond yields have started to settle back down, with a particularly steep drop on Friday, August 1st thanks to cooler US employment data released that day. Only 73,000 new jobs were added, which was a whopping 289,000 fewer than expected. When forecasts miss the mark by such a large number, bond markets tend to have more dramatic reactions. Following the news, US Treasury yields fell by roughly 4.80% from 3.96 to 3.77. The Canadian 5-year bond yield then followed suit, sliding by 3.62% from 3.04% to 2.93%. While a drop in yields is welcome news, they would need to continue to fall before we see any notable movement in fixed mortgage rates. The upward trend is still intact as indicated in the chart below:
The black “support” line connects April’s low to today’s level. Yields are sitting right on it.
Support line: Drawn from April’s trough to today. As long as yields stay above it, the up-trend remains intact.
Resistance line: The mirror image above marks where yields would need to rally to confirm renewed upward momentum.
Trend signals: A decisive break below support would sharply increase the odds of further declines… and, eventually, lower fixed rates. Until then, think “cautiously optimistic.”
It’s important to note that trend-line analysis is a simple tool and markets don’t always obey it. Anything can happen.
How Mortgage Rates Stack Up Today
When the yields were at their low point back in April, there were 5-year fixed rates as low as 3.64% for insured as well as some uninsured mortgages. Today, the lowest rates for a 5-year fixed insured mortgage are as low as 3.99%, with the lowest uninsured rates as low as 4.09%. Fixed mortgage rate pricing can be somewhat complicated, so be sure to reach out to us to get the lowest rate available for your particular situation.
As of now, fixed mortgage rates are at similar levels to where they were when the yields reached their recent peak in mid-July. But even when yields move, lenders also have to price in funding costs, risk assessment, competitive dynamics, etc, so rate changes can be slow to trickle through.
Updated Forecasts for the Bank of Canada Rate
While the Bank of Canada itself has been reluctant to release a forecast due to trade war uncertainty, we can always count on the big six banks to give us their opinions:
‘Last Report’ indicates when the forecast was updated. RBC, TD and National Bank (NBC) only provide the month.
It’s important to note that these are just forecasts which are always changing. There are several notable events prior to the BoC’s next scheduled rate announcement on September 17th:
Canadian Jobs Report – August 8th
US CPI/Inflation – August 12th
Canadian CPI/Inflation – August 19th
Canadian GDP report (monthly and quarterly) – August 29th
Canadian Jobs Report – September 5th
US CPI/Inflation – September 11th
Canadian CPI/Inflation – September 16th
The information released on any of these events can impact the next decision from the BoC. Not to mention, prime minister Carney expects to have a trade deal in place with the US prior to the September 17th announcement which will also influence the decision. We’ll see.
Markets are now predicting a 27% chance of a rate cut from the Bank of Canada on September 17th. This is up from only a 13% chance prior to the US jobs report was released on Friday.
The US Federal Reserve’s next scheduled announcement is set for the same day, where market odds of a cut have increased from 38% to a 96% chance of a cut. It’s amazing how big of a difference a single jobs report can make.
Final Thoughts
Fixed mortgage rate trends can flip on a dime. One week we may be talking about upward pressure on rates… then potential downward pressure the next.
Trends will always come to an end… regardless of which direction they are going in. While were not quite ready to declare downward pressure on fixed rates, we’ll hopefully be there soon. We just need the yields to fall a bit further to break support… and hopefully, a new downward trend will begin. Keyword: hopefully’. We’re not quite there yet.
Time will tell and anything can happen.
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