Upward pressure on fixed mortgage rates builds as bond yields continue to rise. They have been trending upward since the US Federal Reserve announced that they are expecting to raise rates by as much as three times in 2022, which was back in mid-December. Many economists are now predicting this will increase to four times. 

This pushed bond yields higher, however, not enough to result in any upward fixed rate movement.

But in early January, the US Fed hinted that they may need to raise rates earlier than expected. This lit an immediate fire under the bond yields, which spiked up 13% on January 4th (the first business day of the year) and have risen a total of 36% since the news broke.

Fixed mortgage rates have been resilient despite the precipitous increase in yields, however mortgage lenders can only hold on for so long before they are forced to increase rates. They have now gone past the breaking point, resulting in some lenders increasing their rates by 0.10% – 0.15% effective immediately. Other mortgage lenders will follow throughout the week. Especially if the bond yields continue to spike.

 

Bond Yields At Highest Levels Since 2019

The bond yields have now reached their highest level since November 2019. If they tick up even marginally higher, then they’ll be at their highest point since February of the same year. At that time, the lowest 5 year fixed rates were in the range of 3.59% – 3.84%. 

Does this mean that fixed mortgage rates will climb back up to these levels? 

The answer is yes, they will.

Not necessarily right away, but they will eventually climb back up into that range.  The question is when.

 

What Can We Expect From The Bank of Canada Next Week?

The next scheduled rate announcement by the Bank of Canada is next Wednesday, January 26th. In their last rate announcement on December 8th, the BOC projected that they didn’t plan on increasing their rate until sometime in the middle two quarters of 2022.  

But things can and do change.

While the BOC will likely remain quiet until the 26th, there is increasing speculation that they will increase their rate by 0.25% on that date. This is due to the US hinting that they’ll be increasing their rate sooner than expected, and since the Bank of Canada generally follows the US, they can be expected to do the same.

But the US isn’t planning on increasing their rate until March. So why would the Bank of Canada jump the gun to get their rate increase in first? 

It would be a bold move.

Not to mention that we’re still under lockdown.

Regardless of what is being speculated, I’d be surprised if the Bank of Canada comes through with an increase. There is still too much uncertainty around Omicron. The US is widely open, where most Canadian provinces have restrictions in place. This puts Canada behind the US, not ahead of them.

The popular opinion however is that an upward move on January 26th is likely. Everyone will be paying close attention to the Bank of Canada’s announcement next week.

 

Conclusion

Once we’re finally through this last round of lockdowns (hopefully the last round), our economy will continue to thrive. Mortgage rates will continue to increase throughout the year. It’s just a matter of how much they increase by.