Fixed mortgage rates rise as bond yields climb despite steady Bank of Canada rate

The lowest five-year fixed mortgage rate in Canada has risen to 4.34 per cent, up from 3.94 per cent a month ago, driven by climbing bond yields even as the Bank of Canada's policy rate remains unchanged.

For refinances and other uninsurable mortgages, the lowest rate has climbed to 4.64 per cent from 4.24 per cent over the same period, according to data from personal finance platform WOWA.ca.

Fixed mortgage rates are driven largely by bond yields, which reflect expectations for future central bank policy and a broader range of economic and financial factors.

READ MORE: CIBC's prime rate holds at 4.45% as mortgage borrowers weigh options

READ MORE: Immunotherapy combo shows durable survival in heavily treated ovarian cancer

"While that primarily influences variable mortgage rates, fixed mortgage rates are driven largely by bond yields," said Hanif Bayat, CEO and founder of WOWA.ca.

Lenders raise money through deposits and mortgage-backed securities, and their costs closely follow Government of Canada bond yields.

They then add charges for credit risk, hedging, operating costs and profit to set a mortgage rate.

The gap between the mortgage rate and the bond yield is called the spread, and it varies by lender.

In the past 12 months, the five-year bond yield has climbed about 80 basis points, in line with rising yields around the world.

Over the same period, the lowest five-year fixed rate rose only about 45 basis points, which shows the spread has been lower this year than in previous years.

Part of the reason is simple competition, as lenders chase the wave of 2020–21 mortgages coming up for renewal.

Another may be lenders’ belief that yields could fall if geopolitical tensions ease, especially in the Middle East.

Fixed mortgage rates follow bonds, but slowly.

Bond yields move almost every day, while mortgage rates change only once every week or two.

When bond yields rise or fall, lenders typically pass on the change gradually over the following weeks.

They are also quicker to raise rates than to cut them.

If yields hold, mortgage rates may edge up further.

If they fall, relief will likely come more slowly than the increases did.

Based on recent data, a simple rule of thumb is to take the average five-year bond yield over the past two weeks and add 0.8 to 1.0 percentage points to estimate the lowest available rate.

For the lowest five-year insured rate, that gap averaged about 1.0 in 2025 and about 0.8 so far in 2026.

A rate well below that range is likely to rise soon.

Insured mortgages are cheapest because mortgage default insurers carry the default risk.

Yadude Books reported earlier this month that CIBC's prime rate, which influences variable-rate loans, held steady at 4.45 per cent.

With files from The Globe and Mail