Canadian Government Bond Yields Drop, Potentially Lowering Fixed Mortgage Rates
Canadian borrowers are starting to be enticed by five-year mortgage rates. The consumer price index (CPI) in the United States showed promising results today as inflation eased to three per cent, just slightly above a three-year low. This cooling of inflation led to a notable drop in Canadian government bond yields, which are instrumental in steering fixed mortgage rates.
Weaker inflation, even in the U.S., aligns perfectly with the Bank of Canada’s goals. The next significant event is the release of the Canadian CPI report on Tuesday. Optimism is high in the bond market, with traders pricing in a two in three chance of a central bank interest rate cut on July 24.
The lowest nationally advertised rates have remained unchanged compared to last week. However, we could see some minor improvements in leading fixed terms next week. Currently, three-year mortgages, which are available in the high fours (if insured) or low fives (uninsured), are attracting the majority of fixed-rate borrowers. Insured five-year fixed rates as low as 4.44 per cent are beginning to catch the eye of potential borrowers.
On the variable rate front, a notable disparity persists between insured and uninsured floating rates. Insured rates start around 5.65 per cent, while uninsured rates begin at approximately 6.10 per cent. This difference reflects the advantages lenders receive from government-backed mortgage securitization, including reduced risk, improved liquidity, and capital benefits.
