Last Thursday, those of us keeping an eye on the 5 year Canadian bond yield watched it break the all-time low, falling all the way down to 1.01%. This is a big fall in a rather short period of time given back in September of 2014 the 5 year bond yield in Canada was 1.7% (roughly 70bps higher than today).

For those of you that have read my emails or blog posts in the past, you understand that bond yields directly impact fixed mortgage rates in Canada. So, given that bond yields have fallen almost 70 bps (0.7%) and the 5 year fixed mortgage rates have stayed basically flat until the last week or so (now 2.89%) you may be wondering “if bond yields have fallen almost 70bps then why haven’t fixed mortgage rates done the same?”

In the past we’ve seen a fairly typical spread between the 5 year bond yield and the 5 year mortgage rate being in the 150bps range, or 1.5%. If that were the case today, that would put the 5 year fixed mortgage rates between 2.5-2.6%. There’s a couple reason’s why we haven’t seen these rates….yet.

1.) Government programs such as securitization limits, capital requirements and compliance have made funding costs for banks/lenders higher than they used to be.

2.) Volatility in the bond yields has lenders waiting for the yields to settle before making changes.

3.) Bank’s will do whatever it takes to protect their margins.

With the spring market not too far away, historically this is the time we’ve seen lenders making a splash. Such as the BMO 2.99% or the Investors Group variable special they had last year.