How Bond Yields Affect Fixed-Rate Mortgages in Canada

If you’re shopping for a mortgage or nearing renewal, you’ve probably noticed that fixed mortgage rates tend to move—sometimes up, sometimes down—with what seems like little warning. But behind the scenes, there’s a key financial indicator driving these changes: bond yields.

At Mike Hidlebaugh Mortgage, I believe in keeping you informed, not just approved. Understanding what drives mortgage rates helps you make better, more confident financial decisions. So let’s break it down.

What Are Bond Yields?

A bond yield is the return an investor earns on a government bond. In Canada, 5-year Government of Canada bond yields are especially important because they closely track the cost of 5-year fixed mortgage rates.

When bond yields rise, it means the government has to offer more return to attract investors—typically because inflation expectations are higher or the economy is strong. When they fall, it usually signals economic uncertainty or expectations of lower inflation.

Why Bond Yields Influence Fixed Mortgage Rates

Lenders use government bond yields as a benchmark for setting fixed mortgage rates. Why? Because a fixed mortgage is, in many ways, an investment for a lender: they lend you money and expect a predictable return. The bond market helps determine what return they need to remain competitive and profitable.

If bond yields go up, the cost of borrowing for lenders increases—so they raise fixed mortgage rates. If bond yields drop, lenders can afford to offer lower fixed rates.

What This Means for You

1. Fixed Rates Change Based on the Bond Market

   Even if the Bank of Canada doesn’t change its key overnight rate, fixed mortgage rates can still rise or fall based on bond market movement.

2. Watching Bond Yields Can Help You Time the Market

   If you’re approaching a purchase, refinance, or renewal, paying attention to bond trends can offer clues about where fixed rates are heading. For example, a sudden drop in yields may signal that lower fixed rates are coming soon—or are already here.

3. Fixed vs Variable: The Choice May Shift

   When bond yields spike and fixed rates rise faster than variable rates, the decision between fixed and variable becomes more nuanced. As your mortgage professional, I’ll help guide you based on current market conditions and your comfort with risk.

Let’s Stay Ahead of the Curve

At Mike Hidlebaugh Mortgage, I keep a close eye on economic indicators like bond yields, Bank of Canada announcements, and inflation reports so you don’t have to. Whether you’re locking in a rate, exploring options, or just trying to make sense of it all, I’m here to help you navigate with confidence.