Bonds and fixed rates go hand-in-hand
When we see Canadian Bonds on the rise, we have a pretty good idea that fixed mortgage rates are going to move as well. Bonds and mortgage rates are so closely connected and it’s important to know why. Banks and investors buy government bonds, and then the bonds are traded on the public market. The difference between the price of the bond vs its traded value creates the “yield” or the return. When a Canadian bond goes up, so does fixed mortgage rates to offset the lender’s risk of a higher interest rate being paid on a bond. The spread between the bond and fixed mortgage rate is usually about 1-2%. The spread can decrease or increase depending on many global factors like inflation, supply chain issues, government policies, war, consumer sentiment, economic data, etc. As mortgage brokers we typically watch the 5-year bonds as the best indicator of what rates are doing.
We always keep an eye on the bond market, so if you want to chat more about this, give us a call! We're happy to chat.