Real Estate

What Do Falling Bond Yields Mean For Your Fixed Rate Mortgage Renewal?

What Do Falling Bond Yields Mean For Your Fixed Rate Mortgage Renewal?

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    The movement of bond yields plays a significant role in determining fixed mortgage rates. Recently, there has been a drop in bond yields in Canada, which is expected to bring some relief to mortgage shoppers and renewers. 

    In this post, we will explore the impact of falling bond yields on mortgage rates and the mortgage rate forecast for Canada to see how these changes in bond yields could impact interest rates in the near future.


    Key Takeaways

    • Bond yields have experienced a steep decline, typically leading to a drop in fixed mortgage rates.
    • While rate relief is expected, rates may not decline to match the decline in yields due to risk premiums imposed by lenders and mortgage providers.
    • Economic indicators and market forecasts suggest a potential for rate cuts in 2024, although the timing remains uncertain.

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    How Bond Yields Impact the Mortgage Market

    Bond yields serve as a benchmark for fixed mortgage rates. As bond yields decrease, lenders’ borrowing costs decrease, allowing them to offer lower fixed mortgage rates to borrowers. The relationship between bond yields and mortgage rates can be compared between those with the same terms. For example, a 5-year bond yield will directly impact the borrowing costs of 5-year fixed rates, and a 3-year bond yield will directly impact the borrowing costs of 3-year fixed rates. 

    The 5-year Government of Canada bond yield has dropped, reaching 3.33%, falling from a peak of 4.42% on Oct 3rd, 2023. This change of over 100 basis points suggests that fixed mortgage rates should start to come down in response to falling bond yields. 

    When bond yields increase, mortgage rates tend to respond quickly and rise in response. However, when bond yields decline, mortgage rates may not align perfectly with the drop in bond yields. Lenders and mortgage providers will likely maintain risk premiums in their pricing to mitigate potential economic changes. This cautious approach could limit the extent of rate drops, ensuring that lenders are sufficiently protected in case of any adverse market conditions.

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      Are Rate Hikes or Rate Cuts Coming in 2024?

      The movement of bond yields is closely tied to the overall economic outlook and monetary policy decisions. Recent economic data in Canada indicates a weakening economy, including falling headline inflation, a slowdown in consumer spending, and weakening employment data. These factors, combined with growing signs that no further rate hikes are on the horizon, have led to speculations of potential rate cuts.

      While major bank forecasts anticipate rate cuts in mid-2024, market sentiment suggests a higher probability of rate cuts due to weak economic conditions. Bond markets are pricing in a 57% chance of a 50 basis point rate cut in March 2024 and a 21% chance of a 100 basis points cut before the summer of 2024. 

      This indicates a clear market expectation for downward rate adjustments in the near future. However, the exact timing of these rate cuts remains uncertain, and it’s important to monitor economic indicators and central bank announcements for further insights.

      Frequently Asked Questions

      Welcome to our Frequently-Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.

      How do falling bond yields impact variable and adjustable mortgages?

      Bond yields do not directly influence variable or adjustable mortgages. Instead, these rates are linked to the prime rate, determined by the central bank’s policy rate. While falling bond yields may indirectly impact the overall economic conditions and central bank decisions, they do not directly affect variable or adjustable mortgage rates.

      Should I wait for rates to drop before getting a mortgage?

      Timing the market is challenging, and it’s difficult to predict the exact movements of mortgage rates. While falling bond yields may suggest potential rate relief, it’s important to consider your financial situation and long-term goals.

      Consult with a mortgage expert to assess current rates and determine whether it makes sense to get a mortgage today or wait for rates to drop. However, beware that supply risks limit home prices in Canada to say low if rates are reduced, limiting your window of opportunity to score a reasonable price on a home.

      How can I secure the best mortgage rate?

      To secure the best mortgage rate, it’s crucial to shop around and compare offers from multiple lenders. It’s best not to focus solely on the interest rate; consider other factors such as mortgage terms, prepayment options, restrictions, and features. Working with a mortgage expert can be the most beneficial, as they have access to various lenders and mortgage solutions.

      Final Thoughts

      The recent drop in bond yields has created a favourable environment for mortgage shoppers and those with upcoming renewals. While fixed mortgage rates are expected to decrease, the decline may not fully align with the drop in yields due to risk premiums lenders are likely to price in. 

      As a borrower, staying on top of housing and mortgage rate market conditions and economic indicators is important, as market forecasts suggest a potential for rate cuts in 2024. Reach out to nesto’s mortgage experts for tailored advice today so you’re prepared to take full advantage of rate cuts as they happen.


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