Lately, I’ve been getting a lot of questions from clients wondering why Canadian Fixed Rates aren’t budging, even though the Bank of Canada keeps dropping rates. I get it — it can be frustrating to see Canadian variable rates moving down while Canadian Fixed Rates seem stuck.

After the first and second rate drops, Canadian Fixed

Rates followed suit, but this last time, nothing really changed. Some lenders even nudged their fixed rates up a bit. I know that can feel confusing, but there’s actually a simple reason for it.

Here’s the deal — fixed rates in Canada are tied directly to bond yields, especially the 5-year bond. When those bonds are volatile, fixed rates tend to hold or even go up. It’s not really about what the Bank of Canada does with its rates, but rather how the bond market reacts.

Bank of Canada
Canada’s Central Bank

A lot of people don’t realize you can track the 5-year bond yourself. I often recommend YCharts (https://ycharts.com/indicators/canada_5_year_benchmark_bond_yield) as a great resource to stay on top of bond movements. If you see bond yields drop, you can literally reach out to lenders that day and ask about their fixed rates. Sometimes they’ll adjust quickly, but often they wait to see if the bond levels hold.

I remember chatting about this in one of my podcast episodes, The Money Storm Show, and our partners at Brightcap Financial – national commercial mortgage specialists – have echoed the same advice (https://www.brightcapfinancial.ca/). They’re always watching bond yields and how lenders react.

It’s important to stay patient. Unlike the stock market, which reacts in real time, lenders tend to move slower. They wait for stability in bond yields before making big adjustments. So, if you’re waiting for fixed rates to drop, just know it’s a matter of time. The market always finds its level.

In the meantime, I’ll keep an eye on things and share updates as they happen.

Key Factors Affecting Fixed Mortgage Rates:

1. Bond YieldsFixed mortgage rates often move in tandem with Government of Canada bond yields, especially the 5-year bond. When bond yields rise, lenders face higher costs of borrowing and typically pass those costs on to consumers through higher mortgage rates. Bond yields have been increasing recently, and that’s been reflected in the uptick in fixed mortgage rates.
2. Bank of Canada’s Overnight RateWhile the overnight rate directly impacts variable mortgage rates, it indirectly affects fixed rates as well. When the Bank of Canada raises its key interest rate, investors might expect further hikes in the future, which drives bond yields higher. These rising yields result in higher fixed mortgage rates for borrowers.
3. InflationInflation has been one of the biggest drivers of the recent rate hikes. To combat rising prices, the Bank of Canada has been raising its key interest rate, which pushes bond yields up and, in turn, raises fixed mortgage rates. When inflation expectations rise, investors demand higher yields on government bonds, leading to higher fixed rates.
4. Economic GrowthA strong economy generally leads to higher interest rates, as central banks often raise rates to prevent the economy from overheating. This has been the case recently, with a strong recovery and continued growth prompting the Bank of Canada to increase its rates. This environment puts upward pressure on fixed mortgage rates as well.
5. Lender’s Cost of BorrowingMortgage lenders borrow money to fund the mortgages they offer to clients. When their borrowing costs go up (due to higher bond yields or rising rates), they adjust their mortgage rates to reflect those increased costs. In the current economic climate, lenders are facing higher borrowing costs, which contributes to the higher fixed mortgage rates we’re seeing.

If you’re looking to stay informed on the latest mortgage trends, market updates, and tips to navigate these changes, be sure to check out my full blog at larryheran.com/blog. Stay ahead of the curve and make informed mortgage decisions with regular insights from my blog.

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