Bond yields have a “positive correlation” with fixed-rate mortgage rates. That is, when bond yields rise, fixed-rate mortgages rise and vice versa. And since Canadian five-year government bond yields have fallen to 2.9%, and mortgage rates are expected to fall starting Tuesday.
What are bonds?
Bonds are a type of debt security. Governments and firms issue bonds to borrow money from investors. The amount borrowed is known as the face value or par value of the bond.
As a reward for lending, interest is paid on the face value. The rate of interest will be fixed, meaning it stays constant over the lifetime of the bond, or variable, meaning it changes over time in response to changes in a reference rate equivalent to the prime rate.
Bonds are generally known as fixed-income securities, no matter whether their rate of interest is fixed or variable.
The impact on bonds
According to Ratehub.ca (Ratehub Inc. owns each Ratehub.ca and MoneyDown), fixed mortgage rates are on the best way down.
“Bond markets have fallen in response to yesterday’s massive equity sell-off and are now at 2.97%, a low not seen since June 2023 and down 20 basis points in a week,” says mortgage expert Penelope Graham of Ratehub.ca. “This will certainly lead to further discounts on fixed mortgage rates, in addition to the lower rates we have seen in the market in recent weeks.”
The impact on mortgage rates of interest
Bond yields have been declining for a while. Following the Bank of Canada’s (BoC) recent rate cuts on June 5 and July 24, yields were around 3.3%, indicating a decline in fixed mortgage rates. And yesterday’s sell-off by investors indicated an absence of investor confidence. So where are mortgage rates?
“Currently, the lowest insured rate on a five-year fixed-rate mortgage is 4.29%, which is the lowest rate on a five-year term since last May,” says Graham. “With further cuts expected, it’s a good idea for mortgage buyers and renewers to look into rate lock options that would guarantee them today’s lows for up to 120 days.”
In this table you possibly can see the response of mortgage rates of interest.
Will things change into more cost-effective? Maybe, for now
As for the market, some investors are relieved that stock prices are falling, especially those of technology corporations, including the Magnificent 7, which posted mixed earnings this quarter. This has made not only fixed-rate mortgages but in addition some sought-after stocks more cost-effective.
Read more about fixed mortgage rates:
 should keep an eye on fixed mortgage rates. Here’s why.){kind=link}