Downward Pressure on Fixed Mortgage Rates

After the ugly jobs reports in both the U.S. and Canada on Friday, September 5, the Government of Canada 5-year bond yield plunged… and it’s kept sliding into this week. Yields have generally been retreating since their mid-July peak on the back of softer labour data and cooling inflation, and are now down more than 12%.That drop takes yields to their lowest level since mid-May. At that time, the best 3 and 5-year fixed mortgages were in the high 3% range… right around where the lowest fixed rates are today. The single lowest rate on the market right now is a 3-year fixed at 3.69%, a promotional offer for insured mortgages that meet specific criteria.Yes, sub-4% fixed options exist in many scenarios through the right broker (wink). But most lenders remain parked in the mid-4% range. A few have trimmed fixed rates, though nothing material… at least not yet. But if bond yields continue to slide, expect lenders to follow with deeper fixed-rate cuts.

Bank of Canada Rate Cut Incoming? 

Friday’s weak jobs reports on both sides of the border have pushed the odds of a 0.25% cut on September 17 to roughly 90%. That’s a big swing from mid-summer, when markets were pricing only about a 13% chance of a move. 

We still have one more U.S. inflation report due Friday and Canada’s on September 16. Barring any upside surprises, a BoC cut looks likely.

A quick reminder: a BoC move affects prime rate, and therefore HELOCs and variable-rate mortgages. A 0.25% cut to prime does not mean fixed mortgage rates will also drop by 0.25%. It all comes down to the direction of the bond yields. 

Final Thoughts 

Times are always changing.  With new information being released, forecasts will be adjusted accordingly. Just five weeks ago, there was a slim chance of seeing a September cut from the Bank of Canada. Now, it’s almost a sure bet. 

Things are looking good for mortgage rates moving forward. With a bit of luck, fixed rates will continue to trend downward. Again, with a bit of luck. Time will tell and anything can happen in the financial world.