Immediately following the news on the collapse of Silicon Valley Bank in the US, bond yields plummeted by roughly 19%. This put immediate downward pressure on fixed mortgage rates.

But that doesn’t mean a rate drop is guaranteed.

Logically speaking, a 19% drop in bond yields would result fixed rates dropping by 19%. That would have resulted in rate cuts of 0.90% to 1.00%.

Instead, we’ve seen fixed rates drop by around 3% (equal to a 0.15% drop in rate), and that’s only with a few lenders. Most have not budged. 

When bond yields drop, a lenders profit margin increases which then gives them room to cut rates.

Why are mortgage lenders reluctant to come through with the cuts?

During times of elevated fear, volatility and uncertainty, mortgage lenders tend to hold on to larger margins despite having the room to cut their fixed rates. The demise Silicon Valley Bank and Signature Bank in the US, and with multiple other financial institutions in trouble, there is no shortage of fear in the banking industry. This is why mortgage lenders are waiting for the air to clear before they can even consider making any significant cuts.

Downward Pressure Remains on Fixed Mortgage Rates

If the bond yields start to move lower, or even if they hold at their current level, then fixed mortgage rates should drop. But not before mortgage lenders are convinced that the banking system is stable, and their comfort level has increased.

At the time of writing this blog, bond yields are down another 3.46% which is an eight-month low. This is good news for anyone with a mortgage coming up for renewal, or for those with a new home purchase closing.

Conclusion

They US banking shake up has no doubt rattled the confidence of financial institutions on this side of the border.  But their confidence will return, and their comfort level will build. As long as bond yields remain at lower levels, then we should start seeing some lower fixed rates.

While there is still much uncertainty moving forward, at least things seem to be moving in the right direction. 

Time will tell and anything can happen.