Why Are Fixed Mortgage Rates Rising Again?

Just when many Canadians were expecting borrowing costs to continue easing, fixed mortgage rates have started moving higher again.

The reason isn’t simply the Bank of Canada.

A global bond selloff driven by rising government debt, inflation concerns, higher energy prices and geopolitical uncertainty recently pushed Canada’s 5-year government bond yield as high as 3.36%. In response, several Canadian lenders increased fixed mortgage rates by approximately 10–20 basis points. So, what does global government debt have to do with your mortgage?

Governments finance deficits by issuing bonds. When governments need to borrow significantly more money, the supply of bonds increases. At the same time, concerns about inflation, government debt and geopolitical instability can make investors demand a higher return for holding long-term debt.

That means higher bond yields.

And Canada doesn’t operate in isolation. Canadian bond yields tend to move closely with U.S. Treasury yields because the two economies and capital markets are highly interconnected. The Bank of Canada has found that global forces and particularly movements in U.S. Treasury markets have a significant influence on Canadian long-term yields.

Why does this matter to your mortgage?

Here’s the important connection:

Global uncertainty & government borrowing ↑

→ Bond yields ↑

→ Government of Canada 5-year yield ↑

→ Lenders’ funding costs ↑

→ Fixed mortgage rates ↑

Canadian fixed mortgage rates are generally benchmarked against Government of Canada bond yields, particularly the 5-year bond yield for commonly offered fixed terms. 

Variable mortgages work differently. They are much more directly influenced by the Bank of Canada policy rate and lenders’ prime rates.

This means we can actually see a situation where expectations for the Bank of Canada are relatively stable or even pointing toward lower rates—while fixed mortgage rates move higher because global bond yields are rising.

The takeaway

When trying to understand where Canadian mortgage rates may be heading, don’t watch the Bank of Canada alone.

Keep an eye on inflation, government debt, U.S. Treasury yields and especially Canada’s 5-year government bond yield.

Sometimes the bond market tells us where fixed mortgage rates are going before the lenders do.