Factors Influencing Fixed Rate Hikes
The recent surge in fixed mortgage rates can be attributed to several key factors. Firstly, the rise in Government of Canada bond yields, which serve as benchmarks for pricing fixed-rate mortgages, has played a significant role. Over the past week, major banks, including BMO, CIBC, and RBC, have increased their posted rates by 15 to 40 basis points (bps). This upward trend in bond yields has led to adjustments in mortgage rates.
Significant Rate Hikes in Shorter Terms
Data from MortgageLogic.news reveals that shorter 1- and 2-year terms have experienced the most significant rate increases. Deep-discount rates for a 1-year term have risen to 6.25% (up from 5.99% a week ago) among national mortgage providers. Similarly, the posted 2-year rates offered by big banks now average close to 6.40%. The impact of rising bond yields is evident, with rates climbing into the 6% and 7% range.
Potential for Future Fixed Rate Increases
Industry experts predict that fixed mortgage rates may continue to rise in the upcoming week. Ron Butler of Butler Mortgage suggests that lenders and brokerages could raise rates by as much as 30 bps. As the 5-year yield surpasses the 3.60% threshold, there are indications that it may approach the next significant level of 4.00%. Brokers and experts anticipate that sustained yield increases could result in further fixed rate hikes.
Global Factors and Central Bank Moves
The increase in Canadian bond yields was driven by rate hikes by central banks worldwide and the rise in U.S. Treasury yields. Hawkish comments from Federal Reserve Chair Jerome Powell and statements by Fed Governor Michelle Bowman regarding the need for additional policy rate increases have contributed to market concerns about inflation and the economic impact of higher policy rates.
Bank of Canada Fixed Rate Forecasts
Variable rate borrowers may also experience the impact of rising rates, potentially as early as the Bank of Canada’s next policy meeting on July 12. Market expectations point to a nearly 70% chance of an additional quarter-point rate hike next month, with a 100% probability by September. The upcoming inflation and employment figures will be crucial in influencing the Bank of Canada’s decision.
The recent wave of fixed mortgage rate hikes in Canada is a result of surging bond yields and global factors affecting interest rates. As the trend of rising rates continues, borrowers should closely monitor the market and evaluate their mortgage options.
The upcoming decisions by the Bank of Canada and the impact of inflation and employment figures will shape the trajectory of mortgage rates in the coming months. It is advisable for borrowers to seek expert advice and consider their financial goals and risk tolerance when navigating the evolving mortgage landscape.
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