Hello, I would like to know if the increase in 5-year bond rates in the United States can influence 5-year fixed mortgage rates in Canada. THANKS.
– Maia
The 5-year fixed mortgage rate is mainly influenced by the rate of Canada bonds of the same maturity, according to Hendrix Vachon, senior economist at Desjardins Group.
At the margin, according to him, US 5-year bond rates can influence Canadian rates and, by extension, mortgage rates.
Let’s go quietly.
“Canadian mortgage rates will depend more on Canadian bond rates,” says the economist. We take the rate of a 5-year federal government bond to which we add a risk premium that will fluctuate over time depending on the mood of the markets. »
In this regard, we have recently witnessed an increase in risk taking with the banking tensions observed in regional banks in the United States.
A mortgage rate is a retail rate. “There is a pricing strategy behind it. At certain times of the year, the competition is stronger. There will be promotions. It plays in the balance,” continues Mr. Vachon.
So mortgage rates in Canada are influenced by Canadian bond rates of the same maturity and, somewhat, by competition between lenders.
Nevertheless…
“Where US rates can have an influence, emphasizes Hendrix Vachon, is that there is still a limit to Canadian and US rates diverging. There may be fluctuations, but if the general trend in rates is up, there is a good chance that Canadian rates will also follow and, therefore, that Canadian mortgage rates will eventually adjust upwards. We can have this transmission effect from American rates to Canadian rates. »
According to the Desjardins economist, the transmission effect applies in particular to long-term maturities, 10 years or more.
“The shorter the maturities, the more influence the Bank of Canada’s monetary policy has on rates,” he points out.
Last Thursday, the 5-year bond rate was 3.53%, while the US government bond of the same maturity gave a yield of 3.67%.
The difference can be explained by expectations on the evolution of the key rate between the two countries. In addition, the US rate may be incorporating a premium of a few points due to the uncertainty surrounding the raising of the US federal government debt ceiling.
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- 6,49 %
- Posted 5-year fixed mortgage rate
Source : Desjardins
