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What a difference a few weeks can make to the outlook for Canadian mortgage rates.
In the middle of September, our benchmark five-year Government of Canada (GoC) bond yield had surged thirty basis points to 1.73%, hitting its highest level since July, 2013.The mortgage market braced for the first across-the-board hike in five-year fixed mortgage rates this year, but then in less than a month, five-year GoC bond yields plummeted to 1.38%, marking their lowest level since May, 2013.
This heightened volatility was essentially the bi-product of a particularly intense fight between fear and greed in the hearts and minds of investors. In today’s post, I’ll outline why greed won a battle or two, and why fear is still winning the war.
Let’s start with a reminder. GoC bond yields tend to move in the same direction as their equivalent U.S. bond yields over time, and that correlation has tightened further since the start of the Great Recession. Since then, GoC bond yields have followed U.S. bond yields in lock step. Given that, changes in the U.S. outlook, and in investor sentiment toward the overall strength of the U.S. recovery, cause a direct and significant impact on Canadian fixed mortgage rates.
In mid-September our bond yields were surging higher and this was primarily caused by the growing belief that the U.S. recovery had finally achieved sustainable momentum: