Why Fixed Rates Move Even When the Bank of Canada Doesn’t

Eight times per year, the Bank of Canada makes a rate announcement - and headlines explode. “Rates held!” “Rates cut!” “Rates hiked!”
But here’s the secret: those moves affect variable mortgage rates directly. Fixed rates dance to a completely different tune - the one set by the 5-year Government of Canada bond yield.

As a broker, I like to remind my clients: We do not chase the lowest rate. We build the lowest cost of borrowing. That starts with understanding where rates come from.

The Bond-Market Connection
When lenders set fixed-mortgage pricing, they start with a baseline — the yield investors earn on 5-year Government of Canada bonds. That yield represents what it costs to borrow money for five years in the open market.

If that cost rises (say, because investors expect more inflation or stronger growth), lenders’ costs rise, and so do fixed mortgage rates. If that cost falls, lenders can lower their rates.

It’s a simple but powerful relationship: bonds up, rates up. Bonds down, rates down.

Why Yields Move
Several forces shape bond yields:

• Inflation expectations – Investors want higher returns if they expect prices to rise.
• Economic outlook – Strong growth or global uncertainty can shift money in or out of bonds.
• Government borrowing – More bond supply can push yields higher.
• Global market trends – Canada’s yields often mirror global moves, especially in U.S. Treasuries.

The Bank of Canada’s Role (Indirect, Not Direct)

The Bank’s overnight rate influences short-term borrowing and directly affects variable mortgage rates. It can indirectly impact fixed rates by influencing inflation expectations — but it doesn’t set them.

That’s why you can see headlines like: “Bank holds rates steady,” while fixed mortgage rates still rise or fall.

Why This Matters for Homeowners
Understanding this difference helps you make smarter choices:

If you value predictability and peace of mind, fixed rates offer stability - but their timing depends on bond-market trends.
If you’re comfortable with movement and expect cuts, variable might suit you better.
Either way, the key is knowing what influences each, so you’re not reacting to noise.

Real-World Insight
Fixed-rate mortgages act as a snapshot of investor sentiment about the next five years. If the market expects inflation to cool, yields - and fixed rates - can ease. If inflation fears spike, yields - and fixed rates - climb.

Takeaway
When you understand what truly drives fixed rates, you can plan rather than panic. You’ll recognize when it’s time to lock in — and when patience might pay off.

Support beats stress. Every time.

Book a call at www.mortgagecall.ca or email [email protected]