(DIR) Home
        
        
       Canadian bond yields rebound sharply, sending some mortgage rates
       higher
        
 (HTM) Source
        
       ----------------------------------------------------------------------
        
       After being on a downward path for the past two months, Canadian bond
       yields have reversed course and are once again on the rise.
        
       After reaching their lowest point of the year last month, Government
       of Canada bond yields, which influence fixed mortgage rates, have
       surged more than 30 basis points, or 0.30%.
        
       As of Tuesday, the 5-year GoC bond yield—which moves inversely to bond
       prices—broke back above 3.60%, a two-week high. And in the U.S., the
       10-year Treasury yield similarly rose to its highest point since mid-
       June.
        
       ## Why are bond yields rising?
        
       While slowing inflation rates in both Canada and the U.S. had helped
       drive down yields in recent months, several factors are behind this
       latest turnaround, experts say.
        
       For one, U.S. President Joe Biden's poor performance during last
       week's presidential debate may be leading investors to anticipate a
       higher chance of former President Donald Trump winning the November
       presidential election, adding more pressure on Treasuries.
        
       "For a variety of reasons having to do with fiscal policy, tariff
       policy, and immigration policy, we do believe that a prospective Trump
       administration in 2025-2028 will be more inflationary than a Biden
       administration," Thierry Wizman, a global forex & rates strategist at
       Macquarie Group, was quoted as saying in the Economic Times.
        
       Additionally, comments by Federal Reserve Chair Jerome Powell on
       Tuesday seemed to support a potentially "higher-for-longer" interest
       rate outlook.
        
       While he expressed satisfaction with the progress on inflation over
       the past year, Powell said he wants to see more before being confident
       enough to start cutting interest rates. "We want to be more confident
       that inflation is moving sustainably down toward 2% before we start
       the process of reducing or loosening policy," he said.
        
       As we've reported on in the past, Canadian bond yields, and in turn
       mortgage rates to a degree, largely take their cue from economic
       conditions and developments south of the border.
        
       ## How could fixed mortgage rates be impacted?
        
       After seeing some substantial reductions in fixed mortgage rates over
       the past few weeks, some rate watchers say borrowers should expect
       those cuts to pause for now.
        
       "Definitely, the [rate] drops will stop, but if we see the bond yield
       hit 3.60% and hold, I would think you would see at least the
       uninsurable creep up a bit," rate expert Ryan Sims told CMT. "You
       would also kiss goodbye to the deep-discounted insured 5-year rates at
       that point, although I could see the 4.89% fixed hang around for
       insurable."
        
       However, rate shoppers could also see some rates start to rise again
       as well, says Ron Butler of Butler Mortgage.
        
       "Rates are going up as I type this," he told CMT, adding that the big
       banks are being "less aggressive" in their discretionary pricing.
        
       "The ultimate trend [for fixed mortgage rates] will be down, but it
       won't be linear," Butler added.
        
       So, what would it take to get bond yields—and mortgage rates—back on a
       downward path?
        
       "We would need to see inflation come way down in order to bring rates
       down," Sims says. "Every month we see inflation hang higher than
       anticipated, we push bond yields up."
        
       For now, it could take some more time for inflation to edge back
       towards the Bank of Canada's desired 2% neutral target. In May,
       Canada's headline inflation rate rose back to 2.9% from 2.7% in April.
        
       BMO chief economist Douglas Porter described inflation as being on a
       "bumpy" path going forward.
        
       This is also likely to delay rate relief for variable-rate mortgage
       borrowers, whose rates are directly correlated to the Bank of Canada's
       monetary policy decisions. While markets had previously expected a
       second quarter-point rate cut from the central bank at its upcoming
       July meeting, forecasts are now suggesting a September rate cut is
       more likely.
        
       The other economic indicator experts are watching will be this week's
       release of employment data in both Canada and the U.S.
        
       "The market consensus is for a continued rise in our unemployment rate
       to 6.3%," Bruno Valko, VP of national sales for RMG, wrote in a note
       to subscribers. "In my opinion, we desperately need relief in the form
       of lower interest rates."
        
        
        
        
       ______________________________________________________________________
                                                 Served by Flask-Gopher/2.2.1