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Mortgage providers across the country have been busy raising rates over the past week, and it could continue next week as bond yields continue to rise.

On Thursday, the Government of Canada 5-year bond yield briefly surged to an intra-day high above 4.41%. It pulled back slightly, but remains at a 16-year high.

As a result, mortgage providers—including RBC and TD Bank—have been hiking fixed mortgage rates across all terms by up to 30 basis points (0.30%).

“Higher fixed mortgage rates again next week if this keeps up,” tweeted Ron Butler of Butler Mortgage.

The role of risk “spreads”

In a note to clients, TMG The Mortgage Group broker Ryan Sims touched on the intricacies of mortgage rate pricing, including both the influence of bond yields as well as the spread banks apply to manage risk.

While lower interest rates are desirable, they often coincide with economic downturns—and occasionally an economic “train wreck,” as was seen during the 2008 Financial Crisi—resulting in banks increasing spreads to offset perceived risks.

“I would think that if we were to see any economic wobbles over the next 60 to 180 days, we would see bond yield start to drop,” he wrote. “[But] if we see bond yields drop quickly, I would expect the [higher spreads] to start to eat away at any—or all—of the savings.”

He pointed to March 2020 as an example. At that time, the Bank of Canada drastically cut its target overnight rate, yet 5-year fixed mortgage rates actually went up based on the risk at the time.

Source: Canadian Mortgage Trends