On September 2, the Bank of Canada kept its policy rate at 2.25%. Yet over the following week, the five-year Government of Canada bond yield rose by roughly 0.25 percentage points, and several banks began raising fixed mortgage rates. If the central bank did not hike, why could fixed rates still move higher? The answer is that the two do not rely on the same pricing signal.
Variable mortgages primarily follow the Bank of Canada’s policy rate. Fixed mortgages are influenced more directly by market yields on government bonds of comparable terms. When bond yields rise, lenders face greater funding costs and pricing pressure, making fixed mortgage rates more likely to rise as well.
Recent bond-market moves have also been tied to U.S. inflation, energy prices and expectations for Federal Reserve policy. When expectations of a U.S. rate increase strengthen, movements in U.S. Treasury yields can transmit through global bond markets, adding pressure to Canadian yields and eventually to fixed mortgage pricing. Market expectations can reverse quickly, so mortgage decisions should not be based only on whether the Bank of Canada may change its rate next.
For households preparing to buy, renew or refinance, the more useful questions are: fixed or variable, how long to lock in, how much volatility the household cash flow can absorb, and whether there is enough of a risk buffer. A mortgage is not an isolated product; it is a financing tool within the household’s broader wealth plan.
This Guaranti Briefing is narrated in Mandarin with Simplified Chinese and English subtitles. Data and market expectations are current as of the video’s publication date.
Originally published on Guaranti’s YouTube channel.