From a recent Better Dwelling article by Daniel Wong, as fall arrives, Canadians eagerly awaiting interest rate reductions may be disappointed. The Government of Canada’s (GoC) 5-year bond yield is reaching multi-year highs, affecting borrowing costs for homeowners. The global trend of “higher for longer” interest rates prompts a major Canadian bank to scale back rate cut forecasts. Read on for more on how the rising bond yields impact Canadian interest rates.
Half of Canada’s 5-Year Bond Yield Annual Growth Happened In The Past 30 Days
The GoC’s 5-year bond yield has surged in recent days, closing at 4.338%, an increase of more than 7 basis points in one day. In the past month, the yield has risen by 43.9 basis points, nearly half of the total annual increase. The speed of this surge is remarkable.
Canadian Borrowing Costs To Hit The Highest Level Since 2007
The current bond yield is at its highest level since 2007, approaching the 2007 peak. This trajectory is expected to drive 5-year fixed-rate mortgages even higher in the coming year. Rising yields are a global phenomenon likely to increase fixed-term mortgage rates across the board.
BMO Sees Fewer Rate Cuts Next Year After Yield Surge
If you anticipate interest rate cuts to lower variable rates, you might be disappointed. BMO is the first to adjust its rate cut predictions, aligning with the “higher for longer” trend driven by surging yields. Their revised forecast anticipates just two rate cuts next year, leaving the overnight rate at 4.5% by year-end. This revision is 25 basis points lower than their previous estimate, attributed to rising global yields.
Michael Greogory, Deputy Chief Economist at BMO, underscores the theme of “higher for longer” amid continued economic strength and inflation resilience. Factors such as economic robustness, sustained inflation, and rapid population growth contribute to smaller rate cuts. Consequently, the Canadian economy isn’t expected to shed its monetary stimulus until at least 2025, resulting in prolonged higher interest rates—a shift from earlier expectations.
Our Take
Rising bond yields signify a shift in the Canadian interest rate landscape. Homeowners may face the prospect of higher borrowing costs, impacting affordability. Homebuyers might experience limited rate relief, while home sellers could see changes in market dynamics. Overall, these trends hint at a prolonged era of higher interest rates, emphasizing the importance of informed financial planning in the evolving real estate market. The impact of rising bond yields is a crucial consideration for all participants in the real estate market.
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