When markets slide like they did on Monday, the immediate thought may be about stock losses rather than mortgage rates. Yet shifts in the stock market can quickly ripple into the bond market, and that in turn affects fixed mortgage rates. While many borrowers watch the Bank of Canada for signals that could lower variable mortgage rates, fixed-rate borrowers also felt a notable development today after global equities fell.
Fixed mortgage rates tend to move in tandem with government bond yields: when bond yields rise, fixed mortgage rates generally rise too, and when bond yields fall, fixed mortgage rates usually follow. Canadian five-year government bond yields fell to roughly 2.9% as of Tuesday, which points to lower fixed mortgage rates in the near term.
What are bonds?
Bonds are debt instruments governments and corporations use to borrow money from investors. Each bond has a face value (or par value) that represents the principal amount the issuer promises to repay at maturity.
Investors receive interest payments for lending their money. That interest can be fixed for the life of the bond or variable and tied to a benchmark rate. Because bonds provide regular interest payments, they are commonly grouped under the broader category of fixed-income securities, whether their rates are strictly fixed or not.
Read “What are bonds?” in the MoneySense glossary for a more detailed explanation.
The effect on bonds
Mortgage rate trackers such as Ratehub.ca report that fixed mortgage rates are on the decline after recent bond market moves.
“Bond markets have dropped in response to yesterday’s massive stock sell-off, and are now at 2.97%, a low not seen since June 2023, and also marking a 20-basis point drop in the span of a week,” says mortgage expert Penelope Graham of Ratehub.ca. “That will certainly prompt additional discounts for fixed mortgage rates, on top of the lower rates we’ve seen hit the market in recent weeks.”
In short, the investor shift away from equities has increased demand for bonds as safer assets, pushing yields down and creating downward pressure on fixed mortgage pricing offered by lenders.
The effect on mortgage rates
Bond yields have been easing for some time, especially after the Bank of Canada’s interest rate reductions on June 5 and July 24. Those policy moves, combined with recent market volatility, have kept yields around the low-3% range and signalled the potential for lower fixed mortgage rates.
“Right now, the lowest insured five-year fixed mortgage rate is 4.29%, which is the lowest a five-year term has been since last May,” Graham notes. “With further decreases expected, it’s a good idea for mortgage shoppers and renewers to look into their rate hold options, which would guarantee them today’s lows for up to 120 days.”
For borrowers this means lenders may offer more competitive fixed-rate deals in the coming days. Those shopping for a mortgage or approaching a renewal should compare offers, ask about rate-hold periods and consider locking a rate if it aligns with their financial plans and risk tolerance.
How lenders set fixed rates involves several factors beyond five-year bond yields—credit spreads, lender funding costs, and competitive dynamics in the mortgage market also matter—so borrowers should shop around and consult a mortgage specialist if unsure which product best suits their situation.
Will things be more affordable? Maybe, for now
Lower bond yields and corresponding reductions in some fixed mortgage offers can make borrowing cheaper in the short term. Investors who saw technology and other high-growth stock prices fall — including some of the so-called Magnificent 7 — may feel less optimistic about equities and more inclined toward safer assets like government bonds. That shift can temporarily ease borrowing costs and make some mortgage and stock prices more attractive.
However, affordability depends on broader economic factors: income stability, home prices, lender terms and future rate movements. A brief drop in fixed rates can help buyers who time a purchase well or renewers who lock in a new rate, but borrowers should evaluate monthly payments, amortization, and overall financial resilience before committing.
Read more about fixed mortgage rates:
- Fixed or variable mortgage rate: Which should you choose
- 3-year versus 5-year mortgage: How to choose your term
- The best 5-year variable mortgage rates in Canada
- Making sense of the Bank of Canada interest rate decision on July 24
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