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As I write this note, the five-year Canadian government bond yield is at its high for the year. There is a growing risk that we may even reach new cycle highs if economic data does not cool down next month.
But if you're a fan of cheap fares, don't despair just yet. Despite this recent collapse in bond yields and irresponsibly large government stimulus measures, Canada's heavily indebted economy is not immune to multi-decade highs in key interest rates.
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That's why the forward rate markets, where traders hedge or speculate on interest rates, are still seeing two rate cuts from the Bank of Canada this year, starting this summer, according to data from CanDeal DNA. This is despite the increasing likelihood that US interest rate cuts will take longer.
The mortgage scene was quieter than a pantomime conference this week, save for a five basis point rise in four-year fixed rates. However, this calm may only be short-lived. These rising bond yields are likely to push up some of the most competitive fixed interest rates. This is particularly true for default mortgages, which are more closely tied to bond market movements. So if you're looking for a fixed mortgage, lock in this rate like it's the last lifeboat on the Titanic.
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As for floating rates, bond markets are expecting weaker employment, inflation and GDP reports on May 10. May 21st and May 31st respectively. That could give the Bank of Canada enough confidence to cut rates in June or July.
You can count on that, of course, and the US could control Canada's interest rate in the meantime. So expect potential interest rate detours before borrowing costs rise.
Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X below @RobMcLister.
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