Bond Yields Surge, Mortgage Rates Rising In Response

Canadian bond yields have hit their highest level since April, and a number of lenders have responded by raising some of their mortgage rates. The 5-year bond yield, which leads fixed mortgage rates, closed at 0.67% on Monday, a 10-month high. Domestic factors are driving the run-up in bond yields, such as the belief that U.S. inflationary pressures will rise more quickly than previously expected. North of the border, sentiment is largely positive on the expectation of COVID-19 vaccines and the economic impact of the Government of Canada's proposed $100 billion of post-pandemic stimulus spending. The most important details are that bond yields have soared 30 bps since February 1, and that mortgage shoppers should lock in if they are considering a fixed mortgage.

Variable mortgages are not at risk of rising, as they are priced based on the Bank of Canada's overnight target rate. Additionally, borrowers will still have to qualify based on the government's 4.79% mortgage stress test, so an increase in real rates won't have any impact on the amount they can borrow.