Bond yields have dropped A LOT – What does this mean for mortgages?
Hugo Dos Reis
Canadian bond yields have dropped aggressively since Nov 2018 with the benchmark 5 year yield at 1.90 for the first week of January 2019, down from the 2.46% range for the last quarter of 2018. Current bond yields are now lower than they’ve been for ALL of 2018, but mortgage rates are still the highest they’ve been for last 5+ years!
Bond yields directly impact mortgage rates and the direction of bond yields dictates mortgage rates. The recent drop in bond yields can be attributed to several factors including: the Bank of Canada’s signalling towards slower interest rate growth than expected by the market, stalled Canadian economic growth, Canadians’ savings rate at all-time lows and the currently fragile oil sector among the key factors.
Lenders are typically less keen on offering super competitive pricing during the first few months of the year (Jan/Feb), as the focus is typically geared towards RRSPs and investments. Advice for anyone looking to renew is to consider waiting a few months until closer to the Spring when we can expect much more mortgage promotions. Given the lower bond yields, it’s also a matter of time before we see adjustments from the banks for lower pricing. For anyone who needs to take a mortgage now, it could be worth taking a shorter-term 1 year term OR variable rate that would then allow you to renegotiate a new term further into the year when pricing has improved.
Every client situation is unique so a proper discussion with a mortgage professional will help put an appropriate financing plan in place.